This week brings us the release of only four pieces of economic data that likely will affect mortgage rates. There also is a batch of Fed member speaking engagements, including two by Fed Chairman Powell to congress. The bond market will be closed tomorrow in observance of Veteran’s Day, although the stock markets will be open for trading. Because of the holiday, many lenders may use Friday afternoon’s pricing for tomorrow’ rates while others may not accept new locks until Tuesday.
October's Consumer Price Index (CPI) will start this week’s activities early Wednesday morning. The CPI measures inflationary pressures at the consumer level of the economy and is one of the most important reports the bond market sees each month. If it reveals stronger than expected readings, indicating that inflationary pressures are rising at the consumer level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see a 0.3% increase in the overall reading and a 0.2% increase in the core data. The core reading is the more important of the two because it excludes more volatile food and energy prices.
This week’s congressional testimony by Fed Chairman Powell will take place Wednesday and Thursday mornings. These events always take centerstage as market traders watch his prepared words and the question and answer session that follows. They are looking for any tidbits about the Fed’s thought process on future monetary policy moves (or lack of). Whenever the Fed appears before congress, we can expect to see some volatility in the markets. He will be appearing during late morning hours both days, so expect to see a reaction before noon.
Thursday’s sole monthly release will be October's Producer Price Index (PPI) at 8:30 AM ET. It is the sister release to the CPI but tracks inflation at the producer level of the economy. There are also two portions of this index- the overall reading and the core reading. Signs of rapidly rising inflation make long-term securities such as mortgage-related bonds less attractive to investors and leads to higher mortgage rates. The overall reading is expected to show a 0.3% rise from September's level while the core data is expected to rise 0.2%. As with the CPI, weaker than expected readings would be good news for bonds and mortgage rates while a larger than forecasted increase in the core reading could lead to higher mortgage rates Thursday morning.
The Commerce Department will give us October's Retail Sales early Friday morning. This data measures consumer level or retail spending. It is considered extremely important to the markets because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show a 0.2% increase in retail-level spending, meaning consumers spent a little more last month than they did in September. A larger increase in spending would be considered negative news for bonds because rising spending fuels economic growth and raises inflation concerns in the bond market. If Friday's report reveals a decline that indicates consumers spent less than thought, bonds should react favorably, pushing mortgage rates lower. If it shows a larger rise, mortgage rates will likely move higher.
Industrial Production data for October will close this week’s calendar mid-morning Friday. The 9:15 AM ET report will give us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Forecasts are calling for a 0.4% decline in production, indicating moderate strength in the manufacturing sector. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this report is not expected to greatly influence the markets. Therefore, we can expect the sales data to draw the most attention Friday morning.
Overall, Wednesday is the best candidate for most important day of the week due to the significance of the CPI release and Fed Chair Powell’s testimony taking place the same morning. However, Friday could be active also with the retail sales report having the potential to heavily influence the markets. The calmest day could be Tuesday but following a long weekend for the bond market we still may see movement in rates that day. Also worth noting is the public impeachment hearings set to start Wednesday. These should not directly impact bonds or mortgage rates at this time, but as the process proceeds it will be interesting to see if they come into play. With so much going on this week, it would be prudent to watch the markets if still floating an interest rate and closing in the near future as they may be volatile multiple days.