This week has six economic reports scheduled for release that have the potential to influence mortgage rates. Also worth noting is that corporate earnings season is beginning this week. The only day of the week that doesn't have something scheduled that we need to be concerned with is tomorrow. It will be interesting to see if Friday’s late sell-off in bonds carries into tomorrow’s trading.
The first economic data of the week is June's Consumer Price Index (CPI) at 8:30 AM ET Tuesday. This is very important data because it measures inflationary pressures at the consumer level of the economy. Rapidly rising inflation erodes the value of a bond’s future fixed interest payments, making them less appealing to investors. It is expected to show a 0.5% rise in the overall reading and a 0.1% increase in the core data. The core reading is the more important of the two since it excludes more volatile food and energy prices, revealing a more reliable inflation measurement. Last week’s Producer Price Index (PPI) gave us much weaker than expected readings. If we see similar results in the CPI, the bond market should react favorably and possibly lower rates. However, a larger than expected rise in the core reading could send mortgage rates higher.
Wednesday has a morning and afternoon event that we will be watching. June's Industrial Production data is the first, coming at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength. It is expected to show a 4.5% rise in production, indicating that the manufacturing sector strengthened significantly last month. That would basically be bad news for bonds and mortgage rates, but this report is considered to be only moderately important. Therefore, any reaction will be minimal unless there is a wide variance from forecasts.
The Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see an afternoon move in the markets and mortgage rates. Signs of lackluster growth would be favorable news for rates.
June's Retail Sales report is the most important data of the week. This Commerce Department release will be posted Thursday at 8:30 AM ET along with last week’s unemployment update. It is expected to show that retail-level sales rose 5.0% last month as the economy continues to recover from the pandemic. Because consumer spending makes up over two-thirds of the U.S. economy and bonds are more attractive during weaker economic conditions, this data is watched very closely. The smaller the rise in sales, the better the news it is for mortgage rates.
Friday has two reports set for release that have a moderate chance of influencing mortgage rates. June's Housing Starts is first, set for 8:30 AM ET. It will give us an indication of housing sector strength and future mortgage credit demand, but usually doesn't cause much movement in mortgage rates unless it varies greatly from forecasts. Friday's release is expected to show an increase in new home groundbreakings from May’s starts. The lower the number of starts, the better the news it is for the bond market, as it would indicate a weaker than expected new home portion of the housing sector.
The final economic report of the week will be the University of Michigan's Index of Consumer Sentiment at 10:00 AM ET Friday. This index is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted Friday and is expected to show a small increase from June's final reading of 78.1. This would indicate that surveyed consumers were slightly more comfortable with their own financial and employment situations this month as they were last month. It is believed that if consumer confidence in their own finances is rising, they are more apt to make a large purchase in the near future. And with consumer spending making up such a large part of our economy, investors pay close attention to reports such as these. Accordingly, a decline in confidence would be good news for mortgage rates because it means many consumers will probably delay making a large purchase in the immediate future, limiting economic growth.
This week also starts the early part of corporate earnings season where publicly traded companies report their quarterly and annual earnings results and projections. They generally affect stocks directly and not mortgage rates. Although, stock gains usually pressure bonds while stock losses cause funds to shift into bonds, lowering mortgage rates. The heart of the announcements will start next week, but there are enough scheduled this week to affect the markets as they are the first signs of how the pandemic has negatively affected corporate income and profits. These can come into play any day this week. Weaker than expected earnings should cause stock losses and bond gains that would push mortgage rates lower.
Overall, Thursday is the best candidate for most active in rates while Friday may be the calmest. With corporate earnings being the wildcard that can cause volatility any day this week, don’t be surprised to see plenty of movement in rates and possibly intraday revisions multiple days. If floating an interest rate and closing in the near future, it would be prudent to keep an eye on the markets for unexpected changes.