This week brings us the release of only two pieces of monthly economic data, but both 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 relevant to rates scheduled 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.
The two Treasury auctions this week that have the potential to influence mortgage rates are Wednesday's 10-year Note auction and Thursday’s 30-year Bond sale. 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 0.3% 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 the sister release to the PPI and is one of the more important reports we see each month because 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 rapidly rising and the Fed may not need to be as aggressive with their rate hikes to keep the economy balanced. 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 only 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.