This week brings us the release of four pieces of monthly economic data in addition to the minutes from the last FOMC meeting. There is nothing of relevance to mortgage rates scheduled for release tomorrow, so look for the stock markets to drive bond trading and mortgage rates until we get the start of this week’s activities.
The first piece of data will be posted at 8:30 AM Tuesday when July’s Consumer Price Index (CPI) is released. The CPI is one of the most important inflation reports we see each month as it measures inflation at the consumer level of the economy. As with last week’s Producer Price Index, there are also two readings in the report. Analysts are expecting to see a 0.1% increase in the overall index and a 0.1% rise in the more important core data reading that excludes more volatile food and energy prices. Declines in the readings, especially in the core data, should lead to lower mortgage rates since it would mean inflation is still not a threat to the economy. On the other hand, stronger than expected readings will likely lead to an increase in mortgage pricing Tuesday.
July's Housing Starts will also be released early Tuesday morning, which will give us an indication of housing sector strength and future mortgage credit demand. It usually doesn't cause much movement in mortgage rates unless it varies greatly from forecasts. Tuesday’s release is expected to show a fairly sizable increase in construction starts of new homes. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected housing sector.
Wednesday has no relevant economic data set for release, but we will get the minutes from the last FOMC meeting during afternoon hours. There is a pretty good possibility of the markets reacting to them following their release. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy, economic growth and how recent geopolitical events may impact the domestic and global economies. The goal is to form opinions about when Fed Chair Yellen and friends are likely to start raising key short-term interest rates. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during afternoon trading. This is one of those events that can cause significant movement in rates after its release or be a non-factor, so be prepared for a move, but not surprised if the impact on rates is minimal.
Thursday has the final two reports, both at 10:00 AM ET. July's Existing Home Sales is one, coming from the National Association of Realtors. It will give us a measurement of housing sector strength and mortgage credit demand. It covers most home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts' forecasts. It is expected to show a small decline from June's sales, meaning the housing sector weakened slightly last month. This would generally be good news for the bond market and mortgage rates because a strengthening housing sector makes broader economic growth more likely. However, unless the report shows a much stronger or weaker level of sales, it will likely have a minimal impact on Thursday's mortgage pricing.
The Conference Board is a New York-based business research group that will also post its Leading Economic Indicators (LEI) for July late Thursday morning. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening more than thought. However, a weaker reading means that the economy may not grow as much as predicted, making stocks less appealing to investors. This also eases inflation concerns in the bond market and could lead to slightly lower mortgage rates Thursday if the stock markets remain calm and the housing report shows no surprises. It is expected to show an increase of 0.7 % in the index, indicating moderate economic growth over the next couple of months. It will take a sizable difference between forecasts and its actual reading for this report to noticeably influence mortgage rates.
Also worth noting is the annual central banker and economist conference in Jackson Hole, Wyoming. There have been major events to come out of this event in the past while others have been non-factors. Federal Reserve Chair Janet Yellen is scheduled to speak Friday but the conference runs Thursday through Saturday, so any impact on trading or mortgage rates will happen late in the week.
Overall, Tuesday is likely to be the most active day for mortgage rates and tomorrow appears to be the best candidate for least important. Stocks will probably be a contributing factor to bond movement several days also. We saw bonds rally late last week, pushing the benchmark 10-year Treasury Note yield down to 2.34% due partly to geopolitical news out of Ukraine. Those knee-jerk reactions tend to unwind or reverse very quickly, so now that the weekend has been fairly quiet there, we could see bonds start the week under pressure.