This week has five pieces of monthly economic data for the markets to digest, most of which is considered to be important. There are also two Treasury auctions that have the possibility to affect mortgage pricing. All of the relevant economic data comes the latter part, so we could see the most movement in rates as the week progresses.
The first activities of the week are two Treasury auctions that have the potential to influence mortgage rates. They are tomorrow's 10-year Treasury Note auction that will be followed by a 30-year Bond sale Tuesday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is strengthening, the earlier losses are usually recovered after the results are announced. The results of each sale will be posted at 1:00 PM ET of auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading tomorrow and/or Tuesday. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.
The highly important Retail Sales report will kick off the week's economic calendar at 8:30 AM Thursday. This Commerce Department report will give us a very important measurement of consumer spending that is extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.1% decline in sales. Analysts are also calling for a 0.3% rise in sales if more volatile auto transactions are excluded. Stronger than expected sales would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate economic growth.
The Labor Department will post August's Producer Price Index (PPI) early Thursday that will give us an indication of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices. Analysts are predicting 0.1% increases in both readings. Stronger than expected readings could fuel inflation concerns in the bond market. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond's future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates. Rising inflation also makes a Fed rate more likely to come sooner than later.
August's Industrial Production data will be posted at 9:15 AM ET Tuesday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important, meaning the two 8:30 AM reports will be the focus of morning trading. A 0.3% decline from July's level of output is what market participants are expecting to see. An increase would be negative news for bonds and mortgage rates, while a weaker than expected figure would indicate a softer than thought manufacturing sector and would be considered good news. However, the Retail Sales and PPI reports will draw much more attention than this report.
Friday has the other two monthly reports with the release of August’s Consumer Price Index (CPI) and a consumer confidence reading from the University of Michigan. The CPI is the more important of the two since it is considered to be a key indicator of inflation at the consumer level of the economy. As with the PPI, there are two readings in the report. Current forecasts show a 0.1% increase in the overall reading and a 0.2% rise in the more important core reading. The weaker the readings, the better the news it is for bonds and mortgage rates because rising inflation makes long-term investments such as mortgage-related bonds less attractive to investors.
The final relevant release of the week will come from the the University of Michigan late Friday morning. Their Index of Consumer Sentiment for September will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer's confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that sizable purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 91.0 that would mean confidence strengthened from August's level of 89.8. That would be considered slightly negative news for bonds and mortgage shoppers.
Overall, Thursday looks to be the most important day with two highly influential reports scheduled for release. Wednesday could be the calmest day, but that doesn’t mean we are likely to see no change in rates that day. There is some pretty important data coming this week with the FOMC meeting later this month nearing also.