This week brings us the release of four pieces of economic data for the bond market to digest along with the minutes from the most recent FOMC meeting. Making things a little more interesting is the fact that all of the week's events take place over only two days. The financial markets will be closed Monday in observance of the President's Day holiday, so don't expect to see new mortgage pricing until Tuesday morning.
There is nothing of relevance scheduled to be posted Tuesday. The Labor Department will release their Producer Price Index (PPI) for January early Wednesday morning. It measures inflationary pressures at the producer level of the economy and is considered to be one of the key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show a decline of 0.4% in the overall reading and a 0.1% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation that make long-term securities less attractive to investors.
January's Housing Starts will also be posted early Wednesday morning, giving us an indication of housing sector strength and mortgage credit demand by tracking new housing construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for a decline in starts of new housing. That would be favorable news for the bond market and mortgage rates because it would point towards economic weakness. A weak housing sector makes broader economic growth less likely in the near future.
The third and final economic report of the day will be January's Industrial Production data at 9:15 AM ET. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.4% increase in production from December to January. A decline in output would be good news and should push bond prices higher, lowering mortgage rates Wednesday, assuming the PPI the doesn’t reveal any surprises.
Wednesday also brings us the release of the FOMC minutes. Traders will be looking for any indication of the Fed's next move regarding monetary policy, particularly discussion about their first bump to key short-term interest rates. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility Wednesday, or they may be a non-factor. However, they do carry the potential to influence mortgage rates so they should be watched.
Thursday has the last piece of data with January’s Leading Economic Indicators (LEI) being posted at 10:00 AM ET. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.3% increase, meaning that economic activity may rise in the near future. A smaller than expected increase would be good news for the bond market and mortgage rates.
Overall, I am expecting Wednesday to be the most active day for mortgage rates. The least important day is probably Friday as we could see changes to rates Tuesday morning after the long weekend.