This week brings us the release of only four pieces of
monthly economic data in addition to two Treasury auctions that have the
potential to affect mortgage rates. Despite the fairly low number of reports, we
still will likely see a fair amount of movement in the markets and mortgage
pricing due to the importance of those economic reports and the likelihood of
the geopolitical and financial issues being in the spotlight again. The economic
data is set for the middle and late days of the week while the Treasury auctions
will take place mid-week.
There is nothing of relevance scheduled to be posted or take place Monday or
Tuesday. In the absence of anything on the schedule, look for the stock markets
and overseas issues to affect bond trading and mortgage pricing early this week.
As long as no major news or events transpire, stock strength will probably lead
to bond weakness and higher mortgage rates. If the major stock indexes fall from
current levels, bond prices should rise, pushing mortgage rates lower.
August’s Retail Sales data will start the week’s calendar at 8:30 AM
Wednesday. This report comes from the Commerce Department and will give us a
very important measurement of consumer spending. Consumer level spending figures
are extremely relevant to the markets because they make up over two-thirds of
the U.S. economy. Current forecasts are calling for a 0.3% increase in sales.
Analysts are also calling for a 0.3% rise in sales if more volatile auto
transactions are excluded. Larger than expected increases would be considered
bad news for bonds and likely lead to an increase in mortgage pricing since it
would indicate stronger economic growth.
There are two Treasury auctions this week that also have the potential to
influence mortgage rates. The first is Wednesday’s 10-year Treasury Note
auction, which will be followed by a 30-year Bond auction Thursday. It is fairly
common to see some weakness in bonds before these sales as investors prepare for
them. If the sales are met with a decent demand from investors, indicating that
interest in longer-term securities such as mortgage-related bonds is good, the
earlier losses are usually recovered after the results are announced. Results of
sales will be posted at 1:00 PM ET of each auction day. If demand was strong,
particularly from international investors, we should see mortgage rates improve
during afternoon trading those days. However, weak levels of interest could lead
to broader selling in the bond market that could push mortgage rates higher.
The three remaining reports are all set for Friday morning. The first will be
August’s Producer Price Index (PPI) from the Labor Department at 8:30 AM ET,
giving us an important measurement of inflationary pressures at the producer
level of the economy. There are two readings that analysts follow in this
release. They are the overall index and the core data reading. The core data is
the more important of the two since it excludes more volatile food and energy
prices. Analysts are predicting a 0.2% increase in the overall index and a rise
of 0.2% in the core data. Stronger than expected readings may raise inflation
concerns in the bond market. That would be bad news for bonds and mortgage rates
because inflation is the number one nemesis of the bond market as it erodes the
value of a bond’s future fixed interest payments. As inflation becomes more of a
concern in the markets, bonds become less appealing to investors, leading to
falling prices, rising yields and higher mortgage rates.
July’s Industrial Production report is scheduled to be posted at 9:15 AM ET
Friday. This report measures manufacturing sector strength by tracking output at
U.S. factories, mines and utilities. It is expected to show a 0.3% increase from
June’s level. A decline would be considered favorable news for bonds and
mortgage rates because it would indicate manufacturing sector weakness and
broader economic growth would be more difficult if manufacturing activity is
slipping.
The last release of the week will be posted by the University of Michigan
late Friday morning. Their Index of Consumer Sentiment will give us an
indication of consumer confidence, which projects consumer willingness to spend.
If a consumer’s confidence in their own financial situation is rising, they are
more apt to make large purchases in the near future. But, if they are growing
more concerned about their job security or finances, they probably will delay
making that large purchase. This influences future consumer spending data and
therefore, impacts the financial markets. It is expected to show a reading of
81.7 that would mean confidence was nearly unchanged from July’s level of 81.8.
That would be considered slightly favorable news for bonds and mortgage rates.
Good news for mortgage shoppers would be a sizable decline in the index.
Overall, Friday is the best candidate to be labeled most important day with
most of the week’s economic data scheduled, but we could see noticeable movement
in rates Wednesday since it has the single most important release and the
10-year Note auction. The Treasury auctions raise the possibility of afternoon
volatility in the middle days, although I would not be surprised to see
afternoon changes to mortgage pricing other days also if the crises overseas
remain volatile. Accordingly, I strongly recommend maintaining contact with your
mortgage professional this week if still floating an interest rate and closing
in the near future.
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