This week brings us the release of only three economic reports for the markets to digest, two of which are considered important data. In addition to those reports, there are two Treasury auctions and the minutes from last month’s FOMC meeting that certainly have the potential to affect mortgage rates. Tomorrow is the only day of the week with none of these events scheduled.
The first release of the week is September's Producer Price Index (PPI) early Tuesday morning. This index measures inflationary pressures at the manufacturing level of the economy and is considered to be highly important to the bond market. Analysts are expecting to see a 0.1% rise in the overall index and an increase of 0.2% in the more important core data reading. A larger than expected increase in the core reading could fuel inflation concerns, pushing bond prices lower and mortgage rates higher. Inflation is the number one nemesis of the bond market because it erodes the value of a bond's future fixed interest payments. Unexpected growth in inflation also causes the Fed to be more aggressive with rate hikes. When inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.
Wednesday has two afternoon events we will be watching, starting with one of this week's two important Treasury auctions. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as the auctions are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates could move higher. Those results will be announced at 1:00 PM each sale day, so any reaction will come during early afternoon trading.
The second event will be the minutes from last month's FOMC meeting at 2:00 PM ET. These may move the markets or could be a non-factor, depending on what they show. The key points traders are looking for are concerns among Fed members about both our domestic and the global economies, inflation and the Fed's next monetary policy move (expected to be a rate cut). It is worth noting though that the last FOMC meeting was followed by revised economic predictions and a press conference with Fed Chair Powell. Therefore, the likelihood of seeing a significant surprise in the minutes is relatively low.
Next up is September's Consumer Price Index (CPI) at 8:30 AM ET Thursday. It is the sister report to the PPI but tracks inflationary pressures at the very important consumer level of the economy. Analysts are expecting to see a 0.1% increase in the overall index and an increase of 0.2% in the core data. A larger than expected increase in the core reading would be bad news, likely pushing bond prices lower and mortgage rates higher while weaker numbers should help lower rates.
The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment for October will give us an indication of consumer confidence, which helps us measure consumer willingness to spend. If consumer confidence in their own financial situations is rising, they are more apt to make large purchases in the near future. On the other hand, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and can impact the financial markets. It is expected to show a reading of 91.0, meaning confidence was weaker from September's level of 93.2. A decline would be considered favorable news for bonds and mortgage rates because waning consumer spending usually translates into slower economic growth.
There are also a large number of Fed member speaking engagements this week, including three by Chairman Powell. The one that stands out the most is his Wednesday morning speech. However, his words, as with all Fed members, are watched closely. With multiple speeches scheduled every day this week, any of them could end up influencing the markets and mortgage pricing.
Overall, it appears Wednesday or Thursday are the best candidates for most important day of the week. Friday could be the calmest, but we still may see movement in rates that day also. Please watch the markets if still floating an interest rate as they can get extremely volatile at any time.