This week has only four monthly economic reports scheduled for release in addition to some key Fed events that could potentially affect mortgage rates. There is data set for release four of the five days, but the more important events will take place the middle of the week. We also need to watch stocks for influence on bond trading and mortgage rates following the recent slide in oil that negatively impacted stocks last week. Generally speaking, stock weakness should be good news for the bond and mortgage markets.
The week opens with November's Industrial Production report mid-morning tomorrow. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Forecasts are calling for a 0.7% increase in output, indicating manufacturing growth. A smaller than expected rise would be good news for bonds, while a stronger reading may result in slightly higher mortgage pricing.
Next up is November’s Housing Starts at 8:30 AM ET Tuesday morning. This data isn't known to be highly influential on bonds or mortgage pricing, but it does give us an indication of housing sector strength by tracking new home groundbreakings, so it is worth watching. Analysts are expecting to see an increase in new starts, indicating strength in the new home portion of the housing sector. Slowing starts would be favorable for the bond market, although a wide variance is likely needed for the data to cause noticeable movement in the markets or mortgage rates Tuesday.
November's Consumer Price Index (CPI) will be released at 8:30 AM ET Wednesday. It is similar to last Friday's Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the economy. Current forecasts show a decline of 0.1% in the overall reading and an increase of 0.1% in the core data that excludes more volatile food and energy prices. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond's future fixed interest payments, making them less appealing to investors. That translates into falling bond prices and rising mortgage rates. Therefore, weak readings would be favorable for the bond market and mortgage shoppers.
Wednesday also has some significant FOMC events that can be highly influential on the financial and mortgage markets. The two-day FOMC meeting that began Tuesday will adjourn at 2:00 PM ET Wednesday. It is widely expected that Ms. Yellen and company will not change key short-term interest rates at this meeting, but traders and analysts are anxious to get the Fed's current economic forecasts and any indication of when they will make their first increase to key short-term rates. Also worth noting is that the meeting is ending earlier than the traditional 2:15 PM because it is one that will be followed by a press conference hosted by Fed Chair Yellen. The meeting will adjourn at 2:00 PM, forecasts will be posted at 2:00 PM and the press conference will begin at 2:30 PM. It is fairly safe to assume that all of that will lead to afternoon volatility in the markets and mortgage rates Wednesday.
The Conference Board will release their Leading Economic Indicators (LEI) for the month of November late Thursday morning. This release attempts to measure or predict economic activity over the next three to six months. It is expected to show a 0.5% increase, meaning that it is predicting economic growth over the next several months. This probably will not have much influence on bond prices or affect mortgage rates unless it shows a much stronger reading than forecasts. The weaker the reading, the better the news it is for bonds and mortgage pricing.
Overall, Wednesday is the key day of the week due to the CPI and the afternoon Fed schedule. The rest of the week’s data and events are considered to be only moderately important, so unless stocks make a major move higher or lower, we should see only minor changes to rates each day. I believe Friday is the best candidate for calmest day.