This week brings us the release of six reports that may affect mortgage rates in addition to two Treasury auctions. There is nothing of relevance scheduled for release tomorrow or Tuesday but corporate earnings season begins this week. Alcoa is expected to post their earnings after the market closes tomorrow, so it will have an impact on overnight and early morning trading Tuesday. This company isn't necessarily important to gauging economic strength, but it is the first Dow component company that posts earnings each quarter. Since it is the first look into Dow-related earnings, it draws plenty of attention in the markets. Generally speaking, weaker corporate earnings translates into stock selling that makes bonds more attractive to investors. As bond prices rise, yields fall and mortgage rates usually follow bond yields.
Tuesday has the first of two important Treasury auctions when 10-year Notes will be sold. That sale will be followed by a 30-year Bond auction Wednesday. These sales can influence market trading in bonds and possibly affect mortgage rates. If the sales are met with a strong demand from investors, particularly Tuesday's sale, we could see afternoon improvements in bonds that could lead to downward revisions to mortgage rates. However, if buyers stay on the sidelines, we may see bonds fall after results are posted at 1:00 PM ET and mortgage rates move higher those days.
Wednesday doesn’t have a relevant economic report but does have an afternoon release that could influence the markets and possibly mortgage pricing. The Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see afternoon moves in the markets and mortgage rates. Signs of weakness should translate into bond strength and better mortgage rates.
The first economic report of the week is June's Producer Price Index (PPI) from the Labor Department early Thursday morning. It is very important data because it measures inflationary pressures at the producer level of the economy. It is expected to show a 0.3% increase in the overall reading and a 0.1% increase in the core data reading. The core reading is the more important of the two because it excludes more volatile food and energy prices, revealing a more reliable inflation reading. The bond market should react favorably if we get weaker than expected readings, but a larger than expected rise in the core reading could send mortgage rates higher early Thursday.
All four of the remaining reports will be posted Friday morning. June's Retail Sales report will start the day at 8:30 AM ET. This data is considered to be of high importance because it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so any related data is watched closely. The Commerce Department is expected to say that sales at retail level establishments rose 0.2% last month. A larger than expected increase in sales will likely cause bond selling and lead to higher mortgage rates since it would mean consumers are spending more than thought. That would point towards economic growth that makes bonds less attractive to investors.
Next up is June's Consumer Price Index (CPI), also at 8:30 AM ET. This is a mirror of Thursday's PPI with the exception that this report measures inflation at the more important consumer level of the economy. Analysts have forecasted a 0.3% increase in the overall index and a 0.2% rise in the core data. Higher than expected readings could raise future inflation fears and push mortgage rates higher, while readings that fall short of forecasts should lead to lower rates early Friday.
June's Industrial Production data is the third report of the day at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength. It is expected to show a 0.2% rise in production, indicating that the manufacturing sector strengthened slightly during the month. That would basically be bad news for bonds, however the CPI and Retail Sales will take center stage during early morning trading.
The final report of the week will be the University of Michigan's Index of Consumer Sentiment just before 10:00 AM ET Friday. This index is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted Friday and is expected to show little change from June's final reading of 93.5. This would indicate that consumers were just as comfortable with their own financial and employment situations this month as they were last month. It is believed that if consumer confidence in their own finances is rising, they are more apt to make a large purchase in the near future. And with consumer spending making up such a large part of our economy, investors pay close attention to reports such as these. So, a decline in confidence would be good news for mortgage rates because it means many consumers will probably delay making a large purchase in the immediate future, limiting economic activity.
Overall, Friday is the candidate to be the most important day of the week for mortgage rates with two very important reports set for release along with two moderately important. We should see the most movement in rates the latter part of the week. But with Brexit-related news still possible and potential stock swings any day, we could see mortgage rates move noticeably multiple days this week.