This week brings us the release of four pieces of economic data that may influence mortgage rates in addition to a couple of Treasury auctions. We also need to watch stock movement because as we have seen recently, volatility in stocks can heavily affect bond trading and mortgage rates. There is a decent chance of seeing Friday’s late bond rally carry into tomorrow’s trading, especially since there is nothing of importance scheduled to be released.
November's Producer Price Index (PPI) will start this week’s activities 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 faster than thought, 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 should respond by pushing mortgage rates slightly lower. Analysts are expecting no change in the overall index and a 0.1% rise in the core data.
Wednesday’s only relevant data is November's Consumer Price Index (CPI) at 8:30 AM ET. It is the sister release to Tuesday's PPI, except it tracks inflationary pressures at the more important consumer level of the economy. It is expected to show no change 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.
This week’s two relevant Treasury auctions will take place Wednesday and Thursday. Wednesday’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 Thursday'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.
Thursday doesn’t have any economic data that we need to be concerned with. However, Friday does have two reports. The first is November’s Retail Sales report at 8:30 AM that will give us some very important insight into consumer spending. This data is highly important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rapidly rising 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 Friday. Current forecasts are calling for an increase of 0.2% 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 a good candidate for most important day of the week due to the inflation data and 10-year Treasury Note auction, but Friday could be pretty active also. The calmest day may be Thursday. However, stocks can be more unpredictable than bonds. With them having such a heavy influence on the bond and mortgage markets lately, any day may be active. Therefore, it would be extremely prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.