This week brings us the release of only four pieces of monthly economic data in addition to two Treasury auctions that have the potential to affect mortgage rates. Despite the fairly low number of reports, we still will likely see a fair amount of movement in the markets and mortgage pricing due to the importance of those economic reports and the likelihood of the geopolitical and financial issues being in the spotlight again. The economic data is set for the middle and late days of the week while the Treasury auctions will take place mid-week.
There is nothing of relevance scheduled to be posted or take place tomorrow or Tuesday. In the absence of anything on the schedule, look for the stock markets and overseas issues to affect bond trading and mortgage pricing early this week. As long as no major news or events transpire, stock strength will probably lead to bond weakness and higher mortgage rates. If the major stock indexes fall from current levels, bond prices should rise, pushing mortgage rates lower.
August's Retail Sales data will start the week’s calendar at 8:30 AM Wednesday. This report comes from the Commerce Department and will give us a very important measurement of consumer spending. Consumer level spending figures are extremely relevant to the markets because they make up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.3% increase in sales. Analysts are also calling for a 0.3% rise in sales if more volatile auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate stronger economic growth.
There are two Treasury auctions this week that also have the potential to influence mortgage rates. The first is Wednesday's 10-year Treasury Note auction, which will be followed by a 30-year Bond auction Thursday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is good, the earlier losses are usually recovered after the results are announced. Results of sales will be posted at 1:00 PM ET of each auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading those days. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.
The three remaining reports are all set for Friday morning. The first will be August's Producer Price Index (PPI) from the Labor Department at 8:30 AM ET, giving us an important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices. Analysts are predicting a 0.2% increase in the overall index and a rise of 0.2% in the core data. Stronger than expected readings may raise inflation concerns in the bond market. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond's future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates.
July's Industrial Production report is scheduled to be posted at 9:15 AM ET Friday. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.3% increase from June’s level. A decline would be considered favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness and broader economic growth would be more difficult if manufacturing activity is slipping.
The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer's confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 81.7 that would mean confidence was nearly unchanged from July's level of 81.8. That would be considered slightly favorable news for bonds and mortgage rates. Good news for mortgage shoppers would be a sizable decline in the index.
Overall, Friday is the best candidate to be labeled most important day with most of the week's economic data scheduled, but we could see noticeable movement in rates Wednesday since it has the single most important release and the 10-year Note auction. The Treasury auctions raise the possibility of afternoon volatility in the middle days, although I would not be surprised to see afternoon changes to mortgage pricing other days also if the crises overseas remain volatile.