This week brings us the release of four economic reports that have the potential to influence mortgage rates. All of the week's relevant events will take place the middle and latter days, with nothing of importance set for Monday or Tuesday. Three of the reports are considered to be of elevated importance to the bond market and therefore mortgage rates. This raises the possibility of seeing noticeable movement in rates multiple days this week.
Before we get to the week's economic reports, we have to deal with a couple of Treasury auctions. The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sales, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.
The first piece of economic data is April's Producer Price Index (PPI) at 8:30 AM ET Thursday. It helps us track inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the manufacturing level, we should see the bond market improve. The overall index is expected to rise 0.2%, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.2%. A decline in the core data will be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds. As inflation rises, longer-term securities become less appealing to investors since inflation erodes the value of those securities' future fixed interest payments. That is one of the reasons why the bond market tends to thrive in weaker economic conditions with low levels of inflation.
Friday has three pieces of economic data for the markets to digest. April's Retail Sales is first at 8:30 AM ET. This is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.6% increase in sales from March to April. A much weaker than expected level of sales should push bond prices higher and mortgage rates lower Friday morning as it would signal that economic activity may not be as strong as thought. However, an unexpected increase could fuel concerns of economic growth that would lead to stock buying and bond selling, pushing mortgage rates higher.
Also early Friday will be the release of April's Consumer Price Index (CPI). This is the sister report to the PPI, but measures inflationary pressures at the more important consumer level of the economy. These results will be watched closely and could lead to significant volatility in the bond market and mortgage pricing if they show any significant surprises. Current forecasts are calling for a 0.2% increase in the overall index and a 0.2% rise in the core data reading. This data can also affect the Fed's timeline for raising key short-term interest rates and will also help dictate mortgage rate direction.
May's preliminary reading to the University of Michigan's Index of Consumer Sentiment will close out the week's calendar just before 10:00 AM ET Friday. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 96.5, which would be a decline from April's final reading of 97.0, indicating consumers are less confident than last month. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future. I suspect that the earlier reports will draw the most attention Friday and have the bigger impact on mortgage rates.
Overall, the calmest day for mortgage rates will likely be Tuesday while the best candidate for most active day is Friday. We also need to watch stocks for mortgage rate movement. Generally speaking, stock weakness usually makes bonds more attractive while stock gains tend to draw funds from bonds, leading to higher mortgage rates. It will likely be another active week for mortgage rates, particularly as the week progresses. Therefore, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.