This week brings us the release of only two relevant economic releases that are expected to affect mortgage rates. However, there are several other items on the calendar that could cause movement in mortgage rates, including Tuesday’s mid-term elections. There is nothing of relevance set for tomorrow, so look for stocks to be a heavy force in bond trading until we get into this week’s scheduled events.
The first events of the week will be two fairly important Treasury auctions Tuesday and Wednesday. 10-year Treasury Notes will be sold Tuesday while 30-year Bonds go Wednesday, giving us an indication of demand for long-term securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading Tuesday and/or Wednesday. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would probably result in upward revisions to mortgage rates. Tuesday's 10-year Note auction usually has the bigger impact on rates than 30-year Bonds.
This week's FOMC meeting is a two-day meeting that begins Wednesday and adjourns Thursday afternoon. It is widely expected that the Fed will not make a change to key short-term interest rates this week. They are expected to make one more bump to key short-term interest rates this year, but it is likely to come during December’s meeting. This is partly because the Fed rarely makes a move close to an election so that they do not influence results. With a fourth hike of the year highly expected to come next month, market participants will be looking for any indication from this meeting about their plans for 2019. It will not be accompanied by economic projections or a press conference. Therefore, there is a decent chance that this week’s FOMC meeting will be a dud and have little influence on the markets and mortgage rates.
The first data is October's Producer Price Index (PPI) at 8:30 AM ET Friday, which tracks inflation at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core reading. The core data is the more important of the two because it excludes more volatile food and energy prices. Signs of rapidly rising inflation make long-term securities such as mortgage-related bonds less attractive to investors and leads to higher mortgage rates. The overall reading is expected to show a 0.2% rise from September's level while the core data is also expected to rise 0.2%. Weaker than expected readings would be good news for bonds and mortgage rates, while a larger than forecasted increase in the core reading could lead to higher mortgage rates Friday morning.
November's preliminary reading of the University of Michigan's Index of Consumer Sentiment will be posted late Friday morning. This index measures consumer confidence, which gives us an indication of consumer willingness to spend. It is expected to show a reading of 98.0, down a little from October's final reading of 98.6. That would be considered positive news for bonds because waning sentiment means consumers are less optimistic about their own financial situations and are less likely to make large purchases in the near future. With consumer spending making up over two-thirds of our economy, any related data is watched closely. The lower the reading, the better the news it is for mortgage shoppers.
Overall, just the fact we have an FOMC meeting makes Thursday the default for most important day of the week, but Friday may be pretty active also. There is no clear best candidate for calmest day. Wednesday may be, but Tuesday’s election results could cause some havoc in the markets Wednesday. With so much uncertainty, it would be prudent to maintain contact with your mortgage professional this week if still floating an interest rate.