This week has six economic reports that we will be watching for their impact on mortgage rates. Despite last week’s extreme post-election volatility in the financial and mortgage markets that drove bond yields and mortgage rates significantly higher, this week could bring some of the same. The week’s data may or may not be the biggest influence on rates this week. In other words, be prepared for anything the next several days.
There is nothing of importance scheduled for release tomorrow, but weekend political news should drive the financial markets and mortgage rates. At the time of this posting, it appears the bond market is in for a rough open tomorrow, meaning we will see more heavy selling and another spike in mortgage rates. I believe there will be a point in the very near future that we will be able to shift to float recommendations for a short while as the markets correct themselves (possibly this week). Until then though, we will remain cautious and recommend you do so also if floating a rate.
The Commerce Department will give us October's Retail Sales figures early Tuesday morning. This data measures consumer level or retail spending. It is considered extremely important to the markets because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show a 0.6% increase in retail-level spending, meaning consumers spent more last month than they did in September. A larger increase in spending would be considered negative news for bonds because rising spending fuels economic growth and raises inflation concerns in the bond market. If Tuesday's report reveals a smaller increase that indicates consumers spent less than thought, bonds should react favorably, pushing mortgage rates lower. If it shows a larger rise, mortgage rates will likely move higher.
Wednesday has two pieces of data to watch. The first is October's Producer Price Index (PPI) at 8:30 AM ET, which is one of the two key inflation readings on tap this week. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. Signs of rapidly rising inflation make long-term securities such as mortgage-related bonds less attractive to investors and leads to higher mortgage rates. The overall reading is expected to show a 0.3% rise from September's level while the core data is expected to rise 0.2%. Weaker than expected readings would be good news for bonds and mortgage rates, while a larger than forecasted increase in the core reading could lead to higher mortgage rates Wednesday morning.
October's Industrial Production data will come at 9:15 AM ET Wednesday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.2% increase in production, indicating little strength in the manufacturing sector. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this report is not expected to greatly influence the markets. Therefore, it will likely take a sizable variance from forecasts for it to have a noticeable impact on Wednesday's mortgage pricing.
Thursday has two monthly reports scheduled that may have an impact on mortgage rates. One is much more important than the other. That is October's Consumer Price Index (CPI) from the Labor Department at 8:30 AM ET. The CPI is the sister report to Wednesday’s PPI, except it measures inflationary pressures at the consumer level of the economy and is one of the most important reports the bond market sees each month. If it reveals stronger than expected readings, indicating that inflationary pressures are rising at the consumer level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see a 0.4% increase in the overall reading and a 0.2% increase in the core data.
Also at 8:30 AM Thursday will be October's Housing Starts. This report gives us an indication of housing sector strength, but usually does not have a noticeable impact on mortgage rates. I don't expect this month's version to be any different unless it varies greatly from analysts' forecasts. It is expected to show an increase in starts of new homes, meaning the new home portion of the housing sector strengthened last month.
The final report of the week will come from the Conference Board at 10:00 AM ET Friday, when they release their Leading Economic Indicators (LEI) for October. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.1% increase, meaning economic activity will likely rise modestly over the next couple of months. Generally speaking, this would be neutral news for bonds. However, since this data is considered only moderately important, its results need to miss forecasts by a wide margin for it to affect mortgage rates.
Overall, I don’t believe the volatility is quite done yet. It is too difficult to predict which days are the most important as any day could be extremely active if stocks make a move or election-related news breaks. I suspect we will see intraday changes to rates multiple days and possibly multiple changes at least one day.