This week brings us the release of five pieces of economic data that are relevant to mortgage rates. Only one of them is considered to be highly important. However, following last week’s extreme volatility in the financial and mortgage markets where we saw heavy selling in stocks and a decent bond rally, it is a safe bet to say this week will be calmer. That doesn’t mean we won’t see noticeable moves more than one day though. We have something of relevance set for release each day, with the more important data scheduled the early days.
The activities start tomorrow with the release of September's Retail Sales report at 8:30 AM ET. This highly important data measures consumer level sales and is very important to the markets because consumer spending makes up over two-thirds of the U.S. economy. If consumer level spending is strong, overall economic growth is likely to be stronger, making bonds less attractive to investors. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates will probably improve tomorrow morning. Current forecasts are calling for a 0.6% increase in sales. Good news for the bond market and mortgage pricing would be a much smaller increase.
September's Industrial Production data will be posted at 9:15 AM ET Tuesday. This release will give us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.3% increase in output from August's level, meaning that manufacturing activity strengthened slightly last month. A large increase in production would be negative for bonds and mortgage rates as it would indicate economic strength. A decline in output would be favorable for mortgage shoppers.
Wednesday has two events scheduled that we will be watching. The first is September's Housing Starts at 8:30 AM ET. This Commerce Department report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and future mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a drop in new home starts between August and September. I believe we need to see a significant surprise in this data for it to have an impact on mortgage rates.
The second will come during afternoon trading when the minutes from last month’s FOMC meeting will be posted. These may move the markets or could be a non-factor, depending on what they show. The key points traders are looking for are concerns over our and the global economies, inflation and the Fed's next monetary policy move (rate hike). It is worth noting though that the last FOMC meeting was followed by revised economic predictions and a press conference with Fed Chair Powell. Therefore, the likelihood of seeing a significant surprise in the minutes is relatively low.
Thursday's sole monthly release is September's Leading Economic Indicators (LEI) from the Conference Board. This index attempts to measure future economic activity, particularly during the next three to six months. Current forecasts are calling for an increase of 0.5% from August's reading. This would indicate that economic activity is likely to remain grow fairly rapidly over the next couple of months. A small increase would not be of much concern to the bond and mortgage market. A large decline would be favorable to mortgage pricing.
The week's calendar closes late Friday morning when September's Existing Home Sales data. This report will give us an indication of housing sector strength and mortgage credit demand by tracking home resales. It is expected to show a small decline in sales from August to September, meaning the housing sector was flat. That would be relatively good news for the bond market since a strengthening housing sector makes broader economic growth more likely and bonds less appealing to investors. Ideally, it would show a sizable decline in sales that points toward a weakening housing sector.
Overall, tomorrow is the best candidate for most important day for mortgage rates, but Wednesday could be active also if the FOMC minutes show some surprises. The calmest day should be Thursday unless something unexpected happens. As we saw last week, the markets can get very active without warning. Therefore, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.