This week brings us the release of six economic reports that have the potential to affect mortgage rates in addition to a couple of Treasury auctions. We also have the start of corporate earnings season that can significantly impact the stock markets and help direct funds into or away from bonds.
There is nothing of importance set for tomorrow or Tuesday. That leaves stocks as the most likely cause of a noticeable move in mortgage rates. Strong earnings reports should fuel a stock rally that pressures bonds and leads to higher mortgage rates. On the other hand, disappointing earnings news should make bonds more attractive to investors and lead to rate improvements.
The Commerce Department will start this week's activities with the release of March's Retail Sales data at 8:30 AM ET Wednesday morning. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up over two-thirds of the U.S. economy. Forecasts are calling for a 0.1% increase in sales from February to March. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. However, a weaker than expected level of sales could push bond prices higher and mortgage rates lower Wednesday.
Also early Wednesday morning, the Labor Department will post March's Producer Price Index (PPI). It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond's future fixed interest payments and cause the Fed to raise key short-term rates sooner. A good size decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the overall reading and a 0.2% rise in the core data.
The Federal Reserve's Beige Book report will be posted Wednesday afternoon. This report is named simply after the color of its cover but details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising from the last update would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be ideal for mortgage rates. The report will be released at 2:00 PM ET, so any reaction will come during mid-afternoon trading.
The two Treasury auctions are scheduled for Wednesday and Thursday. There is a 10-year Treasury Note sale Wednesday and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as participating firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday afternoon.
Thursday's only monthly data is March's Consumer Price Index (CPI), coming at 8:30 AM ET. This index is one of the more important pieces of data the bond market gets each month. It is similar to Wednesday's PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. As with the PPI, there are two readings in the index that traders watch- the overall and the core data. Analysts are expecting to see a 0.3% rise in the overall readings and a 0.1% increase in the core reading. The core data is the more important reading, which ideally would show a decline in prices at the consumer level, keeping inflation concerns subdued.
Friday has two pieces of economic data worth watching. The first of the day will be March's Industrial Production data at 9:15 AM ET. It tracks output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for no change in the level of production from February’s level. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing. Signs of manufacturing sector strength are considered negative news for mortgage rates, while a large decline in output would be favorable news for the bond market and mortgage shoppers.
The week’s calendar will close with the release of the University of Michigan's Index of Consumer Sentiment at 9:55 AM ET Friday. This index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 91.0 reading. Current forecasts are calling for a reading of approximately 92.0.
Overall, look for Wednesday to be the key day of the week with a couple of important economic releases and the 10-year Treasury Note auction. The calmest day could be tomorrow or possibly Tuesday. Because we also have earnings reports to watch this week in addition to the economic releases, there is a high probability of seeing an active week in the financial and mortgage markets.