This week has six economic reports scheduled for release that have the potential to influence mortgage rates. Also worth noting is that corporate earnings season has begun. Announcements will be many this week, including Alcoa, which traditionally signals the official start of the season. The only day of the week that doesn’t have something schedule is tomorrow.
June's Retail Sales report will start the week’s activities at 8:30 AM ET Tuesday. This data is considered to be of high importance because it measures consumer level spending. Consumer spending makes up over two-thirds of the U.S. economy, so any related data is watched closely. The Commerce Department is expected to say that sales at retail level establishments rose 0.2% last month. A larger than expected increase in sales will likely cause bond selling and lead to higher mortgage rates since it would mean consumers are spending more than thought. That would point towards economic growth that makes bonds less attractive to investors.
Also set for release Tuesday is June's Industrial Production data at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength. It is expected to show a 0.2% rise in production, indicating that the manufacturing sector strengthened slightly during the month. That would basically be bad news for bonds and mortgage rates. However, this report is considered to be only moderately important, so any reaction will be minimal unless there is a wide variance from forecasts.
Wednesday also has two items we will be watching. June's Housing Starts is first, set for 8:30 AM ET Wednesday morning. It will give us an indication of housing sector strength and future mortgage credit demand, but usually doesn't cause much movement in mortgage rates unless it varies greatly from forecasts. Wednesday's release is expected to show little change in the number of construction starts of new homes between May and June. The lower the number of starts, the better the news it is for the bond market, as it would indicate a weaker than expected new home portion of the housing sector.
The Federal Reserve will release its Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see afternoon moves in the markets and mortgage rates. Signs of weakness should translate into bond strength and better mortgage rates.
Thursday has just one monthly release, June's Leading Economic Indicators (LEI) at 10:00 AM ET. This Conference Board index attempts to measure economic activity over the next three to six months. While it is not a factual report, it still is considered to be of moderate importance to the bond market. It is expected to show no change, meaning it is predicting flat economic growth over the next few months. A decline in the index would be good news for the bond and mortgage markets.
The final economic report of the week will be the University of Michigan's Index of Consumer Sentiment at 10:00 AM ET Friday. This index is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted Friday and is expected to show an increase from June's final reading of 98.2. This would indicate that surveyed consumers were a little more comfortable with their own financial and employment situations this month as they were last month. It is believed that if consumer confidence in their own finances is rising, they are more apt to make a large purchase in the near future. And with consumer spending making up such a large part of our economy, investors pay close attention to reports such as these. Therefore, a decline in confidence would be good news for mortgage rates because it means many consumers will probably delay making a large purchase in the immediate future, limiting economic growth.
In regards to stocks and corporate earnings this week, Alcoa is expected to post theirs after the market closes Wednesday. Therefore, it will have an impact on overnight and early morning trading Thursday. This company isn't necessarily key to gauging economic strength, but it is the first Dow component that posts earnings each quarter. Since it is the first look into Dow-related earnings, it draws plenty of attention in the markets. However, there are plenty of other earnings releases that will also be in the spotlight. Generally speaking, weaker corporate earnings translates into stock selling that makes bonds more attractive to investors. As bond buying pushes prices higher, yields fall and mortgage rates usually track bond yields.
Overall, Tuesday is likely to be the most active day of the week while there are a couple days that may end up being the calmest. Although, corporate earnings can heavily drive trading any day. Better than expected earnings would be good for stocks and have a negative impact on bonds. Disappointing earnings should fuel bond buying and lower mortgage rates. With so much going on this week, it looks as though this will be another fairly active week for mortgage rates.