This week brings us the release of only three pieces of monthly or quarterly economic data, but two of them are considered very important to the financial and mortgage markets. In addition to the economic data, there are two Treasury auctions scheduled that have the potential to influence mortgage rates. There is nothing of relevance to rates scheduled for release tomorrow or Tuesday, so look for the stock markets to drive bond trading and mortgage rates until we get to the start of this week's activities.
Employee Productivity and Costs data for the second quarter will start this week's calendar early Wednesday morning. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don't see this being a big mover of mortgage rates, but it may influence them slightly during morning trading. Analysts have predicted a 0.5% rise in productivity during the second quarter and a 1.5% increase in labor costs. A sizable increase in productivity and a smaller than expected rise in costs could help improve bonds, contributing to lower slightly mortgage rates Wednesday.
There are two Treasury auctions this week that also have the potential to influence mortgage rates. The first is Wednesday's 10-year Treasury Note auction, which will be followed by a 30-year Bond auction Thursday. 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 good, the earlier losses are usually recovered after the results are announced. Results of sales will be posted at 1:00 PM ET of each auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading those days. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.
July's Producer Price Index (PPI) will be posted at 8:30 AM ET Thursday, giving us an important measurement 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 an increase of 0.2% in the overall index and a rise of 0.2% in the core data. Stronger than expected readings may raise 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.
The week’s calendar closes with July's Consumer Price Index (CPI) early Friday morning. The CPI is one of the most important reports we see each month as it measures inflation at the consumer level of the economy. As with Thursday’s PPI, there are also two readings in the report. Analysts are expecting to see a 0.2% rise in both. Declines in the readings should lead to lower mortgage rates since it would mean inflation is still not a threat to the economy and another Fed rate hike may come later than sooner. On the other hand, stronger than expected readings will likely lead to an increase in mortgage pricing Friday.
Overall, Thursday or Friday appear to be the best candidates for most active day with the most important reports being released those days. The calmest day for rates will probably be Tuesday, although stocks can change that if they rally or sell-off any day. The week is end-loaded with the most important events coming the latter days and little the early days. However, it still would be prudent to keep an eye on the markets and maintain contact with your mortgage professional if still floating an interest rate and closing in the near future as circumstances can change at any time.