This week has five pieces of monthly economic data for the markets to digest, most of which is considered to be important. There are also two Treasury auctions that have the possibility to affect mortgage pricing. All of the relevant economic data comes the latter part, so we could see the most movement in rates as the week progresses.
The first activity of the week is the first of two Treasury auctions that have the potential to influence mortgage rates. They are Tuesday’s 10-year Treasury Note auction that will be followed by a 30-year Bond sale Wednesday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If they are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is strengthening, the earlier losses are usually recovered after the results are announced. The results of each sale will be posted at 1:00 PM ET of auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading Tuesday and/or Wednesday. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.
The Labor Department will start this week’s data early Wednesday by posting August's Producer Price Index (PPI) that will give us an indication 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 a 0.3% increase in the overall reading a 0.2% rise in the core data. Stronger than expected readings could fuel 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. Rising inflation also makes a Fed rate more likely to come sooner than later.
August's Consumer Price Index (CPI) will be released early 8:30 AM ET. The CPI is the more important of the two since it is considered to be a key indicator of inflation at the consumer level of the economy. As with the PPI, there are two readings in the report. Current forecasts show a 0.3% increase in the overall reading and a 0.2% rise in the core reading. The weaker the readings, the better the news it is for bonds and mortgage rates.
Friday has the remaining three reports, starting with highly important Retail Sales report for August at 8:30 AM ET. This Commerce Department report will give us a very important measurement of consumer spending that is extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.1% increase in sales. Analysts are also calling for a 0.5% rise in sales if more volatile auto transactions are excluded. Stronger than expected sales would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate economic growth.
August's Industrial Production data will be posted at 9:15 AM ET Friday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important, meaning the sales data will be the focus of morning trading. A 0.2% rise from July's level of output is what market participants are expecting to see. A larger increase would be negative news for bonds and mortgage rates, while a weaker than expected figure would be considered good news. However, the Retail Sales report will draw much more attention than this report.
The final relevant release of the week will come from the University of Michigan late Friday morning. Their Index of Consumer Sentiment for September will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer's confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that sizable purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 95.5 that would mean confidence weakened from August's level of 98.8. That would be considered slightly positive news for bonds and mortgage shoppers.
Overall, Friday looks to be the most important day with three influential reports scheduled for release, but Wednesday or Thursday may also be pretty active. Tomorrow could be the calmest day, but that doesn't mean we are likely to see no change in rates that day. There is some pretty important data coming this week with the FOMC meeting later this month nearing also, meaning we should see a pretty active week for mortgage rates. Therefore, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.