This week brings us the release of five relevant economic reports that may influence mortgage rates in addition to an afternoon of FOMC events. A couple of items on this week's calendar are considered to be highly important to the financial and mortgage markets, meaning there is a high probability of seeing significant changes to rates this week. This is especially true the middle days of the week.
August's Industrial Production data will be posted at 9:15 AM ET tomorrow. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important but could help change mortgage rates if there is a significant difference between forecasts and the actual reading. Analysts are expecting to see a 0.3% increase from July's level of output. A sizable increase could lead to slightly higher mortgage rates, while a weaker than expected figure would indicate a softer than thought manufacturing sector and would be considered good news for bonds and mortgage rates.
The Labor Department will post August's Producer Price Index (PPI) early Tuesday, 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 no change in the overall index and a rise of 0.1% in the core data. Stronger than expected readings could fuel 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.
The PPI will be followed by the Consumer Price Index (CPI) early Wednesday morning, which is one of the more important monthly reports for the bond market. It is considered to be a key indicator of inflation at the consumer level of the economy. As with the PPI, there are two readings in the report- the overall index and the core data reading. Current forecasts show no change in the overall reading and a 0.2% rise in the more important core reading. The weaker the readings, the better the news it is for bonds and mortgage rates.
Wednesday's Fed events start with the 2:00 PM ET adjournment of the FOMC meeting that begins Tuesday. It is widely expected that Janet Yellen and company will not change key short-term interest rates at this meeting, but there is plenty of interest in the markets regarding when they will take the first step towards raising rates. Also worth noting is that this FOMC meeting is one that will be followed by updated economic predictions and a press conference with Fed Chair Yellen. Traders will be looking for any revisions to the Fed's outlook on unemployment, GDP growth, inflation and their timetable for keeping key interest rates at current levels. The meeting will adjourn and the economic forecasts will be released at 2:00 PM ET while the press conference will start at 2:30 PM. All this will most likely lead to afternoon volatility in the markets and mortgage rates Wednesday.
Thursday’s only monthly data is August's Housing Starts at 8:30 AM ET. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a decline in new home starts between July and August. I believe we need to see a significant surprise in this data for it to have a noticeable impact on Thursday's mortgage rates.
The final report of the week will come from the Conference Board who will post their Leading Economic Indicators (LEI) for August late Friday morning. The moderately important LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.4% increase, meaning that it is predicting growth in economic activity over the next several months. A larger increase would be considered negative news for bonds and could lead to a minor increase in mortgage rates Friday.
Overall, there is little doubt that this is going to be an active week for the financial and mortgage markets. Wednesday is the key day due to the FOMC schedule. Tomorrow isn't too concerning, but Tuesday and Wednesday morning's data is very important to bonds and Wednesday's afternoon trading could carry into Thursday morning also. In other words, expect to see the most movement in mortgage pricing the middle days of the week.