This week brings us the release of five monthly economic reports for the markets to digest in addition to an appearance by Fed Chairman Powell and two Treasury auctions that we will be watching. A good portion of this week’s data would be highly important under normal circumstances, but the pandemic shutdown has made a couple of them less relevant. The week starts off light with nothing of importance scheduled for tomorrow.
The first events will come Tuesday when April's Consumer Price Index (CPI) is posted at 8:30 AM ET. This report measures inflationary pressures at the consumer level of the economy. These results are normally watched closely because rising inflation makes long-term securities, such as mortgage-related bonds, less attractive to investors. However, inflation is not a concern in the markets at the moment. Therefore, even though we should see declines in the overall and core readings, don’t expect much of a reaction to the results from the bond market or mortgage rates.
In addition to this week’s economic reports there will be two Treasury auctions taking place that have the potential to influence mortgage rates. 10-year Notes will be auctioned Tuesday while 30-year Bonds will be sold Wednesday. Results of each will be posted at 1:00 PM ET on auction day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sales, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.
Next up is April's Producer Price Index (PPI), scheduled for release at 8:30 AM ET Wednesday. This is the sister release to the CPI but tracks inflationary pressures at the producer level of the economy. As with the CPI, there are two readings that the markets usually look at. Since inflation isn’t a concern right now, this report will likely have little impact Wednesday’s mortgage rates.
Wednesday’s PPI release will be followed by a 9:00 AM ET webcast with Fed Chairman Powell. He will be speaking to the Peterson Institute for International Economics and the topic is expected to be highly relative to the current economic situation. Accordingly, market participants will be watching his words closely. That means we can expect to see the markets and mortgage rates move during his webcast.
The week closes Friday with three economic reports, starting with the highly important Retail Sales report for April. This is an extremely influential report because it measures consumer spending, which makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 11.5% decline in sales from March to April. A larger than expected decline in sales should push bond prices higher and mortgage rates lower Friday morning as it would signal that the pandemic is having a bigger impact on the economy than thought.
Friday’s second piece of data will be April's Industrial Production report at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 12% decline in production, indicating that manufacturing activity slowed significantly. This report is considered to be moderately important, so it will likely need to show a noticeable variance from forecasts to cause movement in mortgage rates.
The final report of the week is going to be May's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 68.0, which would be a decline from April's final reading of 71.8, indicating consumers are less confident than last month. If it shows a larger decline in confidence, bond prices could rise and mortgage rates may move slightly lower because waning confidence means consumers are likely to spend less.
Overall, either Wednesday or Friday are likely to be the most active day for rates. Whenever Chairman Powell speaks publicly, there is potential for a great deal of volatility in the financial and mortgage markets and Friday has the most important data of the week. No day stands out as a calm day because while Thursday doesn’t have a monthly release it does have the weekly unemployment update that currently draws a lot of attention.