This week brings us the release of four pieces of economic data that may influence mortgage rates in addition to a couple of Treasury auctions and the last FOMC meeting of the year. Most of the scheduled data is considered to be pretty important to the markets. We also need to watch for trade news as it has been the hot topic in the markets recently.
Tomorrow has nothing scheduled for release that is expected to affect rates, the only day without at least one event. The week’s activities start Tuesday morning with revised 3rd Quarter Productivity numbers at 8:30 AM ET. This index is expected to show a slight upward change from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn't necessarily bad for bonds. It's the conditions around an expanding economy, such as rising inflation, that hurt bond prices and mortgage rates. Current forecasts are calling an annual rate in productivity of down 0.3%. The stronger the reading, the better the news for the bond market. It is worth noting that this report generally does not have a noticeable impact on mortgage pricing, so it will take a wide variance to draw much attention.
This week's two relevant Treasury auctions will take place Tuesday and Thursday. Tuesday's 10-year Note sale is the more important of the two and will likely have a bigger influence on mortgage rates. Results of it and Thursday's 30-year Bond sale will be posted at 1:00 PM ET each day, making them afternoon events. If they are met with a strong demand from investors, particularly international buyers, we should see strength in the broader bond market and improvements to mortgage pricing during afternoon hours those days. On the other hand, a weak interest in the auctions could lead to upward revisions to rates.
Wednesday starts the more important events of the week with the release of November's Consumer Price Index (CPI) at 8:30 AM ET. It tracks inflationary pressures at the consumer level of the economy. Wednesday’s release is expected to show a 0.2% rise in both the overall and core data readings. The core reading is the more important of the two as it excludes more volatile food and energy costs, leaving us more stable information. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond's future fixed interest payments, making them less appealing to investors. It also allows the Fed to be more aggressive with short-term interest rate increases. That translates into falling bond prices and rising mortgage rates. Therefore, weak readings would be favorable for the bond market and mortgage shoppers.
There are also some significant FOMC events Wednesday that can be highly influential on the financial and mortgage markets. The two-day FOMC meeting that begins Tuesday will adjourn at 2:00 PM ET Wednesday. There is a wide consensus that Fed Chairman Powell and friends will leave key short-term interest rates unchanged at this meeting. At the same time their post-meeting statement is made, they will also release revised economic projections. They will be followed by a press conference with Chairman Powell at 2:30 PM ET. This meeting may not bring as much anxiety as the past several meetings because there is little chance that they will make a change to rates. Look for the revised economic projections and/or a possible change to their balance sheet to be the cause of a noticeable move in the markets. There is the potential for it to be very active afternoon for mortgage rates, but it is more likely we will see a relatively calm reaction this time.
November's Producer Price Index (PPI) will be Thursday’s sole monthly economic report. This release is the sister index to the CPI, tracking inflationary pressures at the producer or manufacturing level of the economy. There are also two portions of the index that are used- the overall reading and the core data reading. If it reveals stronger than expected readings, indicating that inflationary pressures are rising faster than thought, the bond market will probably react negatively. That would drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should respond by pushing mortgage rates slightly lower. Forecasts are calling for a 0.2% increase in both readings.
The week’s calendar closes with another important economic release- November's Retail Sales report at 8:30 AM that will give us insight into consumer spending. This data is highly important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rapidly rising spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher Friday. Analysts are expecting to see an increase of 0.5% in November's sales. Favorable results for mortgage rates would be a smaller increase, meaning consumers spent less than thought.
Overall, Wednesday is the best candidate for most important day for rates, but we may find Friday to be active also. The calmest day may be tomorrow unless we get some unexpected trade news. With most of this week’s activities considered to be highly influential on the bond market and mortgage rates, it would be prudent to proceed cautiously if still floating an interest rate and closing in the near future.