This week brings us the release of five pieces of monthly economic data in addition to two Treasury auctions that have the potential to affect mortgage rates. Some of the data is considered to be highly important, meaning we could see noticeable changes to mortgage rates multiple days. Following Friday’s boring Employment report, the markets will likely react heavily to any surprising data.
There is nothing of relevance scheduled to be posted or take place tomorrow, so look for the stock markets to heavily influence bond trading and mortgage pricing as the week starts. Employee Productivity and Costs data for the second quarter will be released early Tuesday morning. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don't see this being a big mover of mortgage rates either, but it may influence rates slightly during morning trading. Analysts have predicted a 1.4% rise in productivity during the second quarter and a 0.1% decline in labor costs. A sizable increase in productivity and a larger than expected drop in costs could help improve bonds, contributing to lower mortgage rates Tuesday.
There are two Treasury auctions this week that also have the potential to influence mortgage rates. The first is Wednesday's 10-year Treasury Note auction, which will be followed by a 30-year Bond auction Thursday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is good, the earlier losses are usually recovered after the results are announced. Results of sales will be posted at 1:00 PM ET of each auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading those days. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.
July's Retail Sales data will be posted at 8:30 AM ET Thursday. This report comes from the Commerce Department and will give us a very important measurement of consumer spending. Consumer level spending figures are extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.5% increase in sales. Analysts are also calling for a 0.5% rise in sales if more volatile auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate stronger economic growth.
The three remaining reports are all set for Friday morning. The first will be July's Producer Price Index (PPI) from the Labor Department at 8:30 AM ET, giving us 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 a 0.1% increase in the overall index and a rise of 0.1% in the core data. Stronger than expected readings may raise inflation concerns in the bond market and help guarantee a Fed rate hike sooner than later. 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.
July's Industrial Production report is scheduled to be posted at 9:15 AM ET Friday. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.3% increase from June's level. A decline would be considered favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness and broader economic growth would be more difficult if manufacturing activity is slipping.
The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer's confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 93.9 that would mean confidence was stronger than July's level of 93.1. That would be considered slightly favorable news for bonds and mortgage rates. Good news for mortgage shoppers would be a sizable decline in the index.
Overall, Friday is the best candidate to be labeled most important day with most of the week's economic data scheduled, but we could see noticeable movement in rates Thursday since it has the single most important release in Retail Sales. Wednesday afternoon could be active also due to the 10-year Note auction.