This week brings us the release of eight economic reports that have the potential to affect mortgage rates. We also have round two of corporate earnings releases that can significantly impact the stock markets and help direct funds into or away from bonds. Strong earnings reports should fuel a stock rally that pressures bonds and leads to higher mortgage rates. On the other hand, disappointing earnings news should make bonds more attractive and lead to rate improvements.
The Commerce Department will start this week's activities with the release of March's Retail Sales data early Tuesday morning. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up over two-thirds of the U.S. economy. Forecasts are calling for a 1.0% increase in sales from February to March. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. However, a weaker than expected level of sales could push bond prices higher and mortgage rates lower Tuesday.
Also early Tuesday morning, the Labor Department will post March's Producer Price Index (PPI). It will give us an important measurement of inflationary pressures at the producer level of the economy. 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. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond's future fixed interest payments and cause the Fed to raise rates sooner, leading to higher mortgage rates. A good size decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.2% increase in the overall reading and a 0.1% rise in the core data.
Wednesday has two pieces of economic data worth watching. The first of the day will be March's Industrial Production data at 9:15 AM ET. It tracks output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for a decline in production of 0.3%. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing. Signs of manufacturing sector strength are considered negative news for mortgage rates, so a larger decline in output would be favorable news for the bond market and mortgage shoppers.
Also Wednesday is the afternoon release of the Federal Reserve's Beige Book report. This report is named simply after the color of its cover but details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising from the last update would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be ideal for mortgage rates.
Thursday’s only monthly data is March's Housing Starts report that tracks groundbreakings of new home construction. It gives us a measurement of housing sector strength and future demand for mortgage credit. It is not considered to be highly important to the markets but does draw enough attention to influence trading if it reveals surprisingly strong or weak numbers. The report will be posted at 8:30 AM ET and is expected to show a sizable increase in starts from February to March due to weather related issues in February. Good news for mortgage rates would be a decline in starts that points toward housing sector weakness.
Friday has three reports scheduled for release. March's Consumer Price Index (CPI) is the first of the day, coming at 8:30 AM ET. This index is one of the more important pieces of data the bond market gets each month. It is similar to Tuesday’s PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. There are two readings in the index that traders watch- the overall and the core data that excludes more volatile food and energy prices. Analysts are expecting to see a 0.3% rise in the overall readings and a 0.1% increase in the core reading. The core data is the more important reading, which ideally would show a decline in prices at the consumer level, keeping inflation concerns subdued.
The University of Michigan's Index of Consumer Sentiment will be posted at 9:55 AM ET Friday. This index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 93.0 reading. Current forecasts are calling for a reading of approximately 94.0.
The Conference Board will release their Leading Economic Indicators (LEI) for March at 10:00 AM ET Friday. This data attempts to measure economic activity over the next three to six months. This is considered to be only a moderately important report, so at best we can expect to see a slight movement in rates as a result of this data. It is expected to show a 0.3% increase from February's reading, meaning it is predicting modest growth in economic activity over the next several months. A decline would be considered good news for the bond market and could lead to slightly lower mortgage rates.
Overall, the most important reports are Tuesday's Retail Sales and Friday's CPI index, but Wednesday’s Beige Book could cause volatility if it shows significant changes from the last revision. I believe we will see the most movement in mortgage rates either tomorrow or Friday. However, we need to keep a close eye on the stock markets for mortgage rate direction also. With corporate earnings getting pretty busy this week, we may see stocks get pretty active, possibly influencing bond movement and mortgage rates.