This week brings us the release of six economic reports for the markets to digest over four trading days, most of which is considered important data. The bond market will be closed today in observance of the Columbus Day holiday as will most banks. The stock markets will be open for trading though. This means that the lenders that are open for business will likely not be issuing new rates today, opting to use Friday's pricing or not accepting new rate locks. The bond market will reopen for regular trading Tuesday morning.
September's Retail Sales report will start this week's calendar early Wednesday morning. It measures consumer level sales and is very important to the markets because consumer spending makes up over two-thirds of the U.S. economy. If consumer level spending is strong, overall economic growth is likely to be stronger, making bonds less attractive to investors. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop Wednesday. Current forecasts are calling for a 0.2% increase in sales. Good news for the bond market and mortgage pricing would be a decline.
Also set for release at 8:30 AM ET Wednesday is September's Producer Price Index (PPI). This index measures inflationary pressures at the manufacturing level of the economy and is also considered to be highly important to the bond market. Analysts are expecting to see a decline of 0.3% in the overall index and an increase of 0.1% in the more important core data reading. A larger than expected increase in the core reading could raise inflation concerns, pushing bond prices lower and mortgage rates higher. Inflation is the number one nemesis of the bond market because it erodes the value of a bond's future fixed interest payments. Unexpected growth in inflation also makes a Fed rate hike likely to be sooner than later. When inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.
Wednesday's final relevant report is the Federal Reserve's Beige Book, which is named simply after the color of its cover. This report details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher Wednesday afternoon.
Thursday's only monthly data is September's Consumer Price Index (CPI) at 8:30 AM ET. It is the sister report to the PPI, measuring inflationary pressures at the very important consumer level of the economy. Analysts are expecting to see a drop of 0.2% in the overall index and an increase of 0.1% in the core data. A larger than expected increase in the core reading could raise inflation concerns, pushing bond prices lower and mortgage rates higher Thursday morning.
Friday has the two remaining reports, starting with September's Industrial Production data at 9:15 AM ET. It will give us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.2% decline in output from August's level, meaning that manufacturing activity softened last month. A large increase in production would be negative for bonds and mortgage rates as it would indicate economic strength. A larger decline in output would be favorable for mortgage shoppers.
The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment for October will give us an indication of consumer confidence, which helps us measure consumers' willingness to spend. If consumer confidence in their own financial situations is rising, they are more apt to make large purchases. 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 can impact the financial markets. It is expected to show a reading of 88.5, which would mean confidence rose from September's level of 87.2. A decline would be considered favorable news for bonds and mortgage rates because waning consumer spending usually translates into slower economic growth.
Overall, it appears Wednesday is an easy label for the most important day of the week with two highly important reports in the morning and the Beige Book during afternoon trading. Tuesday could be the calmest but following a three day weekend in bonds we still may see some movement in rates. In addition to the economic data, there are many companies posting earning reports during the week, including some big names. If the corporate earnings releases are generally weaker than forecasts, stocks may suffer, making bonds more appealing to investors. The end result would likely be an improvement in rates. The flip side though is stronger than expected earnings that drive stocks higher, pushing bond prices lower and mortgage rates upward.