This week brings us the release of four economic releases that could affect mortgage rates, none of which are considered to be key reports. However, in addition to the data, we also have an afternoon filled with Fed FOMC events midweek. After the major selling in bonds over the past week or two, we could certainly use some favorable news. Unfortunately, it likely will not come in the economic releases. The Fed events could help reverse the negative momentum in bonds and mortgage pricing, or possibly cause another leg higher. In other words, despite the lack of key data, it still is going to be a highly important week for the markets.
There is nothing of importance set for release tomorrow. August's Industrial Production data will start this week’s activities at 9:15 AM ET Tuesday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important, meaning it can influence mortgage rates if it shows a noticeable variation from forecasts. A 0.1% rise from July's level of output is what market participants are expecting to see. A larger increase would be negative news for bonds and mortgage rates, while a weaker than expected figure would be considered good news.
August's Housing Starts is next, coming early Wednesday morning. It tracks groundbreakings of new home projects but likely will not affect mortgage rates unless its results vary greatly from forecasts. It is expected to show that starts of new homes rose last month, indicating strength in the housing sector. That is bad news for the bond market and mortgage rates because a stronger housing sector makes broader economic growth more likely. However, this data is not important enough to cause a noticeable change in mortgage rates unless there is a wide variance between forecasts and the actual results.
The big events of the week will come from the Fed Wednesday afternoon. They start with the FOMC meeting that is expected to yield a quarter-point cut to key short-term interest rates. It will adjourn at 2:00 PM ET. What will be of interest is verbiage in the post-meeting statement that may hint when the Fed will make their next move, possibly at December’s meeting.
Also at 2:00 PM ET Wednesday, the Fed will release their revised economic projections for the U.S. The markets are interested in whether Chairman Powell and friends think economic conditions will be stronger or weaker in the coming months and years than previously thought. Key readings the markets will be looking for are the unemployment rate, inflation and overall GDP growth. Downward revisions by the Fed will be good news for bonds and mortgage pricing because it would mean another reduction to key short-term interest rates before the end of the year may happen. On the other hand, upward revisions that indicate the economy is likely to be strong enough that they will not need to reduce rate again this year could cause bond selling and an increase to mortgage rates.
The adjournment, post-meeting statement and economic projections will be followed by a press conference with Chairman Powell at 2:30 PM ET. All Fed meetings are highly important, but this one is particularly significant for the financial and mortgage markets due to the uncertainty of when the Fed will make another monetary policy move and their expectations for next year. Analysts and market traders will be watching his words carefully for any indication on what the Fed's plans are. Any question or answer at the press conference can impact the markets, so there is a decent chance of seeing quite a bit of volatility Wednesday afternoon.
Next up is August's Existing Home Sales from the National Association of Realtors that will be posted late Thursday morning. This report will give us another indication of housing sector strength by tracking home resales in the U.S. It is expected to show a decline from July's sales. Good news would be a sizable decline in sales because a weakening housing sector makes broader economic growth more difficult.
The final report of the week will come from the Conference Board who will post their Leading Economic Indicators (LEI) for August late Thursday morning also. The moderately important LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.1% increase, meaning that it is predicting modest growth in economic activity over the next several months. A larger increase would be considered negative news for bonds and could lead to a small increase in mortgage rates Thursday.
Overall, Wednesday is easily the most important day of the week due to the Fed schedule. The weekend attack on the Saudi oil refinery may cause some volatility in the markets tomorrow also. Generally speaking, situations of political turmoil and/or war are favorable for bonds and detrimental to stocks. Comments from President Trump have hinted that a military strike may be in the works as a reaction to the attack. The wild card with this particular situation is that while higher oil prices are bad for the economy and hurt stocks, they also raise inflation concerns that make bonds less appealing to investors. In addition to auto, truck and airplane fuel, so many of our daily necessities use petroleum products. In other words, the higher oil prices may lead to higher costs being passed on to the consumer. The safe bet would be money on the news having a favorable influence tomorrow as the initial reaction. After that, it will be wait and see.