This week brings us the release of four economic reports that have the potential to influence mortgage rates. All of the week’s relevant events will take place the middle and latter days, with nothing of importance set for tomorrow or Tuesday. Several of the reports are considered to be of elevated importance to the bond market and therefore mortgage rates. This raises the possibility of seeing noticeable movement in rates multiple days this week.
The first piece of data this week is April's Retail Sales at 8:30 AM ET Wednesday morning. This is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.2% increase in sales from March to April. A weaker than expected level of sales should push bond prices higher and mortgage rates lower Wednesday morning as it would signal that economic activity may not be as strong as thought. However, an unexpected increase could renew theories of economic growth that would lead to stock buying and bond selling, pushing mortgage rates higher.
Thursday has April's Producer Price Index (PPI) at 8:30 AM ET. It helps us track inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the manufacturing level, we should see the bond market improve. The overall index is expected to rise 0.2%, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.1%. A decline in the core data will be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds. As inflation rises, longer-term securities become less appealing to investors since inflation erodes the value of those securities' future fixed interest payments. That is why the bond market tends to thrive in weaker economic conditions with low levels of inflation.
The last two pieces of data will be posted Friday morning. April's Industrial Production is the first of the day at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.1% increase in production, indicating that manufacturing activity was fairly flat. A decline in output would be good news for the bond market and mortgage rates because it would indicate that the manufacturing sector is not as strong as thought. This report is considered to be moderately important, so it will likely need to show unexpected strength or weakness to cause movement in mortgage rates.
May's preliminary reading to the University of Michigan's Index of Consumer Sentiment will close out the week's calendar just before 10:00 AM ET Friday. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 96.0, which would be a slight change from April's final reading of 95.9, indicating consumers are a just as confident as last month. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future.
The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sales, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.
Overall, the calmest day for mortgage rates will likely be tomorrow while the best candidates for most active day are Wednesday and Thursday. Both have key economic data being posted that will attract plenty of attention in the bond market. We also need to watch stocks for mortgage rate movement. Generally speaking, stock weakness usually makes bonds more attractive while stock gains tend to draw funds from bonds, leading to higher mortgage rates.