This week brings us plenty that may influence mortgage rates. We have seven monthly reports for the bond market to digest in addition to a Fed-filled afternoon. The most important reports and Fed events take place the middle days, so we may see the most movement in mortgage rates those days.
There is nothing set for release tomorrow. The Labor Department will post February's Producer Price Index (PPI) early Tuesday morning to start the week’s activities. This important index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and watched more closely because it excludes more volatile food and energy (such as gasoline) prices. If the index shows a large increase, inflation concerns will rise, making long-term investments such as mortgage-related bonds less attractive to investors. Rising inflation also could cause the Fed to make more rates hikes this year than previously expected. Therefore, increases larger than the 0.1% and 0.2% that are expected would be bad news for mortgage rates.
Wednesday is going to be interesting to say the least. We have two very important pieces of economic data at 8:30 AM to begin the day. February's Retail Sales data from the Commerce Department is one. This data is extremely important to the financial markets because it measures consumer spending strength. Since consumer spending makes up over two-thirds of the U.S. economy, data that is related usually has a big impact on the markets. This month's report is expected to show a rise in sales of 0.1%. If it reveals a larger increase, the bond market will likely fall and mortgage rates will move higher as it would indicate a stronger level of economic growth than many had thought. If it shows a much weaker level of spending, I expect to see bond prices rise and mortgage rates improve Wednesday morning, assuming the second release doesn’t show a significant surprise.
That second release of the morning will be February's Consumer Price Index (CPI). It is the sister release to Tuesday's PPI but measures inflationary pressures at the very important consumer level of the economy. The CPI is expected to show a 0.1% increase in the overall index and a 0.2% rise in the more important core data. As with the PPI, weaker than expected readings would be good news for bonds and mortgage rates.
Wednesday also has several Fed events scheduled. They start with the 2:00 PM ET adjournment of the two-day FOMC meeting that begins Tuesday. There is much debate whether or not Fed Chairman Yellen and company will raise key short-term interest rates at this meeting. There is a very good chance that they will make another quarter point bump and I am one that believes it happen Wednesday. Even if no move is made, we will be closely watching the post-meeting statement for changes in verbiage that could indicate when their next move is likely to take place. If they don’t act at this meeting, it is widely expected that it will come at the next. So, if the post-meeting statement hints that it may not happen at the next meeting either, we can expect a very favorable reaction in the bond market.
The FOMC meeting will adjourn at 2:00 PM ET, which is when the statement will be released. That is also when we will get the Fed’s updated economic projections. Those events will be followed by a press conference by Chair Yellen. It is likely going to be a pretty active morning Wednesday but an even more active afternoon in the financial and mortgage markets.
There rest of the week gets much simpler. February's Housing Starts data will be released early Thursday morning. This report tracks construction starts of new housing and doesn't usually cause much movement in mortgage rates. It is considered one of the least important reports we see each month but is expected to show an increase in housing starts, indicating growth in the housing sector. Good news for the bond market and mortgage rates would be a sizable decline in new starts. However, unless we see a large variance from forecasts the data likely will not lead to a noticeable move in mortgage pricing.
Friday closes the week's calendar with three moderately important reports. First is February's Industrial Production report at 9:15 AM ET. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.2% rise from January's level. A large decline would be considered favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness. Broader economic growth would be more difficult if manufacturing activity is slipping.
Next up is the University of Michigan's Index of Consumer Sentiment for March just before 10:00 AM ET. This index gives us a measurement of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, then they are more apt to make large purchases in the near future. This helps fuel consumer spending levels and economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates. Bad news for bonds and mortgage rates would be rapidly rising confidence. It is expected to show a reading of 96.8, up from February's final reading of 96.3.
The final report of the week will be Leading Economic Indicators (LEI) for February from the Conference Board. This index attempts to measure economic activity over the next three to six months. It is considered to be moderately important, but likely will not have a significant impact on mortgage rates. Current forecasts are calling for a 0.5% increase, meaning it is predicting that economic activity will likely expand moderately in the coming months. A smaller than forecasted rise, or better yet a decline would be considered good news for the bond market and mortgage rates.
Overall, Wednesday is the key day of the week due to the morning economic releases and the afternoon Fed events. The calmest day is harder to predict but tomorrow or Thursday are the best candidates. There is a strong likelihood that we will see plenty of movement in the markets and mortgage rates this week. Accordingly, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.