This week has four monthly economic reports scheduled for release in addition to a couple of Treasury auctions and some key Fed events that should significantly affect the financial and mortgage markets. There is something of importance coming every day, meaning it will likely be another active week for the markets and mortgage rates.
The first events we need to deal with are the two Treasury auctions tomorrow and Tuesday. There is no relevant economic data scheduled tomorrow, so the auction may have a heavier influence on the bond market and mortgage pricing than usual. Tomorrow's 10-year Note sale is the more important of the two and will likely have a bigger influence on mortgage rates. Results of it and Tuesday’s 30-year Bond sale, will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, particularly international buyers, we should see strength in the broader bond market and improvements to mortgage pricing during afternoon hours those days. On the other hand, a weak interest in the auctions could lead to upward revisions to rates.
November's Producer Price Index (PPI) will be posted early Tuesday morning. It shows inflationary pressures at the producer level of the economy. 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, giving a more stable reading for analysts to consider. If it reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively. That would drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market could respond by pushing mortgage rates slightly lower. Analysts are expecting a 0.4% increase in the overall index and a 0.2% rise in the core data.
Wednesday is clearly the most important day of the week. It has an important morning economic release, followed by an afternoon of Fed events. The data is November's Consumer Price Index (CPI) at 8:30 AM ET. It is the sister release to Tuesday's Producer Price Index, except it tracks inflationary pressures at the important consumer level of the economy. It is expected to show a 0.4% rise in the overall reading while the core data is forecasted to show a 0.2% increase. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond's future fixed interest payments, making them less appealing to investors. It also allows the Fed to be more aggressive with short-term interest rate increases. That translates into falling bond prices and rising mortgage rates. Therefore, weak readings would be favorable for the bond market and mortgage shoppers.
Wednesday also has some significant FOMC events that can be highly influential on the financial and mortgage markets. The two-day FOMC meeting that begins Tuesday will adjourn at 2:00 PM ET Wednesday. There is a wide consensus that expects Fed Chair Janet Yellen and friends to make a quarter point upward bump to key short-term interest rates. At the same time their post-meeting statement is made, they will also release revised economic projections. That will be followed by a press conference with Chair Yellen at 2:30 PM ET. Accordingly, expect a very active afternoon in the financial and mortgage markets Wednesday.
Thursday has one monthly report also, but it is an extremely important release. November's Retail Sales data will be posted at 8:30 AM ET. This report will give us a key measurement of consumer spending by tracking sales at retail level establishments. This data is highly important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rapidly rising consumer spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher Thursday. Current forecasts are calling for an increase of 0.3% in November's sales.
The week’s calendar closes with November's Industrial Production report mid-morning Friday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Forecasts are calling for a 0.3% rise in output, indicating modest manufacturing sector strength. A decline would be good news for bonds, while a stronger reading would show manufacturing strength and be considered bad news for rates.
Overall, Wednesday is the key day of the week due to the CPI followed by the FOMC meeting adjournment, Fed economic projections and press conference. The calmest day could be Friday. This week is probably going to be another active week for the markets and mortgage pricing. Focus will be on the inflation-related data and the FOMC events. While the markets are expecting a Fed rate increase, what is still being debated is how many moves the Fed expects to make next year. I am expecting that portion of the FOMC adjournment to have the biggest influence on rates. It, along with the week’s important data, makes it prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.