This week brings us the release of four economic reports for the markets to digest over four trading days, most of which is considered important data. In addition to that data, there are two Treasury auctions that certainly have the potential to affect mortgage rates. The bond market will be closed tomorrow in observance of the Columbus Day holiday as will most banks, so there will not be an update to this report tomorrow. The stock markets will be open for trading though. This means that the lenders that are open for business will likely not be issuing new rates tomorrow, opting to use Friday's pricing or not accepting new rate locks. The bond market will reopen for regular trading Tuesday morning.
The first release of the week doesn’t come until Wednesday afternoon when the Federal Reserve releases their Beige Book report. This report details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we may see mortgage rates revise higher as a result.
Wednesday also has the first of this week's two important Treasury auctions. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as the auctions are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day, so any reaction will come during early afternoon trading.
Friday has the remaining three economic reports, starting with September's Retail Sales report at 8:30 AM ET. This highly important data measures consumer level sales and is very important to the markets because consumer spending makes up over two-thirds of the U.S. economy. If consumer level spending is strong, overall economic growth is likely to be stronger, making bonds less attractive to investors. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates will probably improve Friday morning. Current forecasts are calling for a 0.6% increase in sales. Good news for the bond market and mortgage pricing would be a much smaller increase.
Also set for release at 8:30 AM ET Friday is September's Producer Price Index (PPI). This index measures inflationary pressures at the manufacturing level of the economy and is also considered to be highly important to the bond market. Analysts are expecting to see a 0.2% rise in the overall index and an increase of 0.1% in the more important core data reading. A larger than expected increase in the core reading could raise inflation concerns, pushing bond prices lower and mortgage rates higher. Inflation is the number one nemesis of the bond market because it erodes the value of a bond's future fixed interest payments. Unexpected growth in inflation also makes a Fed rate hike likely to be sooner than later. When inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.
The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment for October will give us an indication of consumer confidence, which helps us measure consumers' willingness to spend. If consumer confidence in their own financial situation is rising, they are more apt to make large purchases. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and can impact the financial markets. It is expected to show a reading of 92.4, meaning confidence rose from September's level of 91.2. A decline would be considered favorable news for bonds and mortgage rates because waning consumer spending usually translates into slower economic growth.
Overall, it appears Friday is an easy label for the most important day of the week with two highly important reports being posted, although Wednesday afternoon could be active also. Tuesday could be the calmest but following a three-day weekend in bonds we still may see some movement in rates. In addition to the economic data, there are many companies posting earning reports during the week, including some big names. If the corporate earnings releases are generally weaker than forecasts, stocks may suffer, making bonds more appealing to investors. The end result would likely be an improvement in rates. The flip side though is stronger than expected earnings that drive stocks higher, pushing bond prices lower and mortgage rates upward.