This week has only three pieces of monthly economic data scheduled for release in addition to a couple of Treasury auctions that have the potential to influence mortgage rates. Two of the economic releases are considered highly important though and the Treasury auctions are the more important set we regularly deal with, so despite the lack of a busy calendar we still should see noticeable movement in rates this week.
The first events we need to deal with are the two Treasury auctions Wednesday and Thursday. Wednesday's 10-year Note auction is the more important one and will likely have a bigger influence on mortgage rates. Results of the sales will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, particularly international buyers, we should see strength in the broader bond market and improvements to mortgage pricing during afternoon hours those days. On the other hand, a weak interest in the auctions could lead to upward revisions to mortgage rates.
All three of the week’s monthly economic reports are set for release Friday. November's Retail Sales report is the first at 8:30 AM ET. This report will give us a key measurement of consumer spending by tracking sales at retail level establishments. This data is highly important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rapidly rising consumer spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher Friday. Current forecasts are calling for an increase of 0.4% in November's sales.
The second relevant report of the week will be November's Producer Price Index (PPI), also early Friday morning. It measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices, giving a more stable reading for analysts to consider. If Friday's release reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should respond well and mortgage rates could fall. Current forecasts are showing a 0.1% increase in the overall index and a 0.1% decline in the core data.
The final report of the week is the release of December's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly if it shows a sizable miss from forecasts. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up such a large part of our economy, any related data is watched closely. Friday's release is expected to show a reading of 91.6, which would be a decline from last month's final reading of 93.1. A larger decline in confidence would be considered good news for the bond market and mortgage rates.
Overall, Friday should be the most active day of the week with all of the week’s relevant data being posted, but Wednesday afternoon could be fairly active also. The calmest day will likely be Tuesday. It will probably be a calmer week than last week in terms of mortgage rate movement although we still should see rates change over the week.