This week brings us the release of only three monthly economic reports for the markets to digest in addition to a couple of potentially relevant Treasury auctions and an afternoon of Fed events. The week starts off light with nothing of importance scheduled for tomorrow or Tuesday morning. It should be a much calmer week for rates compared to last, although, we still should see noticeable movement.
The first event of the week will come Tuesday afternoon when results of the 10-year Treasury Note auction are posted at 1:00 PM ET. If investor demand was high for these securities, we may see bonds rally during afternoon trading. However, weak interest in these types of sales could lead to bond selling and an increase in mortgage rates. This process will be repeated Thursday when 30-year bonds are sold.
Next up is May's Consumer Price Index (CPI) early Wednesday morning that measures inflationary pressures at the consumer level of the economy. This data is normally watched closely and has the potential to lead to significant volatility in the bond market and mortgage pricing if it shows a major surprise. Rising inflation makes a bond’s future fixed interest payments less valuable to investors, so weaker than expected levels would be ideal for mortgage rates. Forecasts are calling for a 0.1% increase in the overall reading and no change in the more important core data that excludes volatile food and energy costs.
The Fed is meeting for another FOMC meeting this week, adjourning Wednesday afternoon. All meetings are now followed by a press conference with Chairman Powell, but this meeting will also include revised economic projections from the Fed. There is no chance of them changing key short-term interest rates at this meeting. However, the markets will also be looking for any indication about the Fed’s future monetary policy plans, specifically about bond purchases and other moves that will affect their balance sheet. It will also be interesting to see if the Fed’s economic projections line up with market forecasts. This is the first meeting with these projections since the pandemic started. It will adjourn at 2:00 PM ET as will the release of the post-meeting statement and economic forecasts. The press conference will begin at 2:30 PM ET, meaning these events will affect trading and mortgage rates mid-afternoon Wednesday.
Besides the 30-year Treasury Bond auction, Thursday also has a monthly economic release along with weekly unemployment figures. May's Producer Price Index (PPI) is set for release at 8:30 AM ET, which is the sister report to Wednesday’s CPI but measures inflationary pressures at the producer level of the economy. As with the CPI, there are two readings to this index that analysts pay attention to and the weaker they are, the better the news it is for mortgage rates. Forecasts are calling for a 0.1% increase in the overall reading and no change in the core data.
June's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be posted late Friday morning to close out this week's calendar. This index measures consumer willingness to spend and usually has a minor to moderate impact on the financial markets. It is expected to show a reading of 75, which would be an increase from May's 72.3. A smaller than expected reading would be considered good news for bonds because it would indicate that surveyed consumers were less optimistic about their own financial and employment situations than thought. That often means they are less likely to make large purchases in the near future, but since this report is only moderately important it probably will not influence mortgage rates considerably unless we see a significant variance from forecasts.
Overall, Wednesday is the most important day for rates due to the importance of the CPI and the afternoon FOMC events. Tomorrow may end up being the calmest day, but Mondays always carry the potential of a reaction to weekend political, medical or civil unrest news. We also have Friday’s employment surprise that continue to influence the markets as the week begins without new data. It is a safe bet that we will see the most movement midweek unless something unexpected happens. The markets can get active without notice, so it would be prudent to keep an eye on them if still floating and closing in the near future.