The financial and mortgage markets are closed today in observance of the Labor Day holiday. They will reopen for regular trading tomorrow.
The rest of the week has only two pieces of monthly economic data scheduled for release in addition to two Treasury auctions that have the potential to affect mortgage rates. There is nothing of relevance scheduled to be posted or announced tomorrow or Wednesday morning. In the absence of any economic data on the schedule, look for the stock markets to affect bond trading and mortgage pricing early this week. Stock strength will probably lead to bond weakness and higher mortgage rates. If the major stock indexes fall from current levels, bond prices should rise, pushing mortgage rates lower the first couple days.
There are two Treasury auctions this week that 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 strengthening, the earlier losses are usually recovered after the results are announced. The results of each sale will be posted at 1:00 PM ET of auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading Wednesday and Thursday. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.
Friday morning has both pieces of economic data scheduled. The first is the Labor Department’s Producer Price Index (PPI) for August, 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% decline in the overall index and a rise of 0.1% in the core data. Stronger than expected readings could fuel inflation concerns in the bond market and make a Fed rate increase come 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.
The other relevant monthly release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment for September 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 sizable purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 91.5 that would mean confidence slipped from August's level of 91.9. That would be considered slightly good news for bonds and mortgage rates.
Overall, Friday is the best candidate to be most important day with all of the week's economic data scheduled, but we could see movement in rates Wednesday afternoon also following the 10-year Treasury Note auction. With the FOMC meeting, projections and press conference looming next week, any surprises this week could affect theories about what the Fed will say following that meeting.