This week brings us the release of five economic reports that have the potential to affect mortgage rates in addition to a day of FOMC events that are highly relevant. A couple of items on this week's calendar are considered to be highly important to the financial and mortgage markets, meaning there is a high probability of seeing significant changes to rates this week. This is especially true the middle days since there is nothing of importance set to be posted today.
The highly important Retail Sales report will kick off the week’s calendar at 8:30 AM Tuesday. This Commerce Department report will give us a very important measurement of consumer spending that is extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.3% increase in sales. Analysts are also calling for a 0.2% 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 economic growth.
August's Industrial Production data will be posted at 9:15 AM ET Tuesday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important but could help change mortgage rates if there is a significant difference between forecasts and the actual reading. Analysts are expecting to see a 0.2% decline from July's level of output. A sizable increase could lead to slightly higher mortgage rates, while a weaker than expected figure would indicate a softer than thought manufacturing sector and would be considered good news for bonds and mortgage rates. However, the Retail Sales report will draw much more attention than this report.
Wednesday morning’s only worthwhile news will be August’s Consumer Price Index (CPI) at 8:30AM ET. This report is considered to be a key indicator of inflation at the consumer level of the economy. There are two readings in the report- the overall index and the core data reading that excludes more volatile food and energy prices. Current forecasts show a 0.1% decline in the overall reading and a 0.1% rise in the more important core reading. The weaker the readings, the better the news it is for bonds and mortgage rates because rising inflation makes long-term investments such as mortgage-related bonds less attractive to investors.
Thursday's only monthly data is August's Housing Starts at 8:30 AM ET. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a decline in new home construction starts between July and August. I don’t believe this data will have any influence on mortgage rates, partly because of what will follow during afternoon hours.
The week’s biggest events will come Thursday afternoon, starting with the FOMC meeting that may or may not bring an increase in key short-term interest rates. The Fed events start with the 2:00 PM ET adjournment of the FOMC meeting that begins Wednesday along with revisions to the Fed’s economic projections. The general consensus is that Janet Yellen and company will not change key short-term interest rates at this meeting, but there are plenty of market participants that feel a move is coming. This meeting will also be followed by a press conference with Fed Chair Yellen at 2:30 PM ET. All Fed meetings are highly important, but this one is particularly significant for the financial and mortgage markets. I personally believe key rates will be left alone at this meeting, but we should get some direction on when that first move will come. I also believe we will see a great deal of volatility in the markets and mortgage rates Thursday afternoon.
The final report of the week will come from the Conference Board who will post their Leading Economic Indicators (LEI) for August late Friday morning. The moderately important LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.2% increase, meaning that it is predicting modest growth in economic activity over the next several months. A larger increase would be considered negative news for bonds and could lead to a small increase in mortgage rates Friday.
Overall, there is little doubt that this is going to be an active week for the financial and mortgage markets. Thursday is the key day due to the FOMC schedule. Monday isn't too concerning, but Tuesday and Wednesday morning's data is very important to bonds and Thursday's afternoon trading could carry into Friday morning also. In other words, expect to see the most movement in mortgage pricing the middle days of the week.