There is nothing of relevance scheduled to be posted Tuesday, but there are four things Wednesday that we need to watch. The Labor Department will release their Producer Price Index (PPI) for January at 8:30 AM ET Wednesday morning. It measures inflationary pressures at the producer level of the economy and is considered to be one of the key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show a decline of 0.2% in the overall reading and no change in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation that make long-term securities less attractive to investors.
Next up is January's Housing Starts, also set be posted early Wednesday morning. This report gives us an indication of housing sector strength and mortgage credit demand by tracking new housing construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for a rise in construction starts of new housing. That would be negative news for the bond market and mortgage rates because it would point towards economic gains. A weak housing sector makes broader economic growth less likely in the near future, which makes bonds more attractive to investors. Therefore, the smaller the number of starts, the better the news it is for mortgage rates.
January's Industrial Production data will be released mid-morning Wednesday. It helps us measure manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.3% increase in production from December to January. A decline in output would be good news and should push bond prices higher, helping to lower mortgage rates Wednesday.
Wednesday also brings us the release of the minutes from the most recent FOMC meeting. Traders will be looking for any indication of the Fed's next move regarding monetary policy, particularly when the next rate increase may come. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility Wednesday, or they may be a non-factor. However, they do carry the potential to influence mortgage rates so they should be watched.
Late Thursday morning will be the release of the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.2% decline, meaning that economic activity may slow in the near future. A larger than expected decline would be good news for the bond market and mortgage rates. This data is not considered to be highly important, so a sizable variance from forecasts is needed for it to directly affect mortgage rates.
The sister report to Wednesday's PPI will be posted early Friday morning when January's Consumer Price Index (CPI) is released. The difference between the two is that the CPI measures inflationary pressures at the more important consumer level of the economy. With exception to maybe the Employment report, the CPI is the single most important report that we see each month. Its results can have a significant impact on the financial markets, especially on long-term securities such as mortgage-related bonds. Inflation isn't exactly a concern currently, but there are many that feel the Fed's monetary policy decisions are going to fuel rapid inflation down the road, so analysts still track the readings closely. Current inflation readings will also influence the Fed’s decisions regarding rate increases. The report is expected to show a 0.1% decline in the overall index and a 0.1% rise in the more important core data that excludes food and energy costs. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall Friday morning.
Overall, I am expecting Wednesday to be the most active day for mortgage rates. The least important day is probably Thursday as we could see changes to rates Tuesday morning after the long weekend. We will likely see a bit calmer week than recent ones have been.