This week brings us the release of only four pieces of monthly economic data for the markets to digest, but we will also get the minutes from last month's FOMC meeting and two Treasury auctions. Despite the small number of economic reports, we still should have a relatively active week for mortgage rates.
February's Factory Orders will start the week’s activities late tomorrow morning. This data is similar to the Durable Goods Orders report that was released last week, except it includes orders for both durable and non-durable goods. It will give us another measurement of manufacturing sector strength and is considered to be only moderately important to the bond and mortgage markets. Therefore, unless it varies greatly from forecasts of a 0.6% decline, I suspect that the data will have a minimal impact on tomorrow's mortgage rates.
Next up is the Consumer Price Index (CPI) at 8:30 AM ET Wednesday. This index is one of the more important pieces of data the bond market gets each month. It will give us a measurement of inflationary pressures at the consumer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data. The core data carries more significance to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond's future fixed interest payments and causes the Fed to be more aggressive with key short-term rate hikes. Weaker than expected readings would be favorable news for the bond market and mortgage rates. Current forecasts are calling for a 0.3% rise in the overall reading and the core data to rise 0.2%.
This week also has two Treasury auctions that have a decent chance of affecting mortgage rates. There is a 10-year Treasury Note sale Wednesday and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as participating firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday.
Wednesday afternoon also has the minutes from the last FOMC meeting. Market participants will be looking at them closely as they give us insight to the Fed's current thought process and individual Fed member opinions. Any surprises in the 2:00 PM ET release, particularly about inflation, economic conditions or when the next rate hike will take place, could cause afternoon volatility in the markets Wednesday and possible changes in mortgage pricing.
March's Producer Price Index (PPI) will be posted early Thursday morning. It is the sister release to the CPI but measures inflationary pressures at the producer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. As with the CPI, there are two readings in the index that traders watch- the overall and the core data. Analysts are expecting to see a 0.3% increase in the overall reading and a 0.2% rise in the core reading.
The week closes with the University of Michigan's Index of Consumer Sentiment late Friday morning. This index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 98.4 reading. Current forecasts are calling for a reading of approximately 98.0.
Overall, Wednesday is the key day of the week with the CPI, FOMC minutes and 10-year Treasury auction all scheduled. Although, stock selling or heavy buying could influence trading any day of the week. Generally speaking, stock weakness makes bonds more appealing to investors while stock gains usually cause pressure in the bond market. The benchmark 10-year Treasury Note yield failed to stay below 2.37%, eventually closing the week at 2.50%. I don’t believe it will hover around this level very long. We are likely to see it move towards 2.42% or closer to 2.6%. Since mortgage rates tend to track bond yields, the former would be better news for mortgage shoppers. Whichever direction it will move could happen as soon as this week. Accordingly, please proceed cautiously if still floating an interest rate and closing in the near future.