Market Commentary for the Week of November 17th

This week has six economic reports scheduled for release that are relevant to mortgage rates in addition to the minutes from last month’s FOMC meeting. A couple of the reports are considered highly important to the markets, meaning we could see noticeable movement in rates more than one day. This is especially true if stocks make a noticeable move higher or lower any particular day.
October’s Industrial Production data will start the week’s activities at 9:15 AM ET Monday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.2% increase in production, indicating little strength in the manufacturing sector. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this report is not expected to greatly influence the markets. Therefore, it will likely take a sizable variance from forecasts for it to have a noticeable impact on Monday’s mortgage pricing.
Tuesday’s only report is October’s Producer Price Index (PPI) at 8:30 AM ET, which is one of the two key inflation readings on tap this week. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. Signs of rapidly rising inflation make long-term securities such as mortgage-related bonds less attractive to investors and leads to higher mortgage rates. The overall reading is expected to show a 0.2% decline from September’s level while the core data is expected to rise 0.1%. Weaker than expected readings would be good news for bonds and mortgage rates, while a larger than forecasted increase in the core reading could lead to higher mortgage rates Tuesday morning.
October’s Housing Starts is Wednesday’s only economic data worth watching. This report gives us an indication of housing sector strength, but usually does not have a noticeable impact on mortgage rates. I don’t expect this month’s version to be any different unless it varies greatly from analysts’ forecasts. It is expected to show an increase in starts of new homes, meaning the new home portion of the housing sector strengthened last month.
Also worth noting is the release of the minutes from the last FOMC meeting Wednesday afternoon. Traders will be looking for any indication of the Fed’s next move regarding monetary policy, particularly when the first rate increase will come. They will be released at 2:00 PM ET, so any reaction will come during afternoon trading. This release is one of those that may cause some volatility in the markets after they are posted, or could be a non-factor. If they show anything surprising, we may see some movement in rates Wednesday afternoon, but it is more likely there will be little reaction.
Thursday has three reports scheduled that may have an impact on mortgage rates. The first is the most important of the three. That is October’s Consumer Price Index (CPI) from the Labor Department at 8:30 AM ET. The CPI measures inflationary pressures at the consumer level of the economy and is one of the most important reports the bond market sees each month. If it reveals stronger than expected readings, indicating that inflationary pressures are rising at the consumer level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see a 0.1% decline in the overall reading and a 0.1% increase in the core data.
The second is October’s Existing Home Sales data from the National Association of Realtors at 10:00 AM. It gives us a measurement of housing sector strength and mortgage credit demand by tracking home resales in the U.S. This report is expected to show little change, meaning the housing sector was flat last month. That would be relatively good news for the bond market and mortgage pricing, but unless it shows a significant surprise, it will likely not have a major impact on mortgage rates.
The final report of the week will come from the Conference Board, also at 10:00 AM ET Thursday, when they release their Leading Economic Indicators (LEI) for October. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning economic activity will likely rise fairly quickly over the next couple of months. Generally speaking, this would be bad news for bonds. However, since this data is considered only moderately important, its results need to miss forecasts by a wide margin from forecasts for it to affect mortgage rates.
Overall, the most active day of the week will probably be Thursday with three reports being posted, one of which is the most important of the six scheduled. Wednesday afternoon also has the potential to be volatile if the FOMC minutes reveal a significant surprise. The best candidate for calmest day in rates is Friday. With data set for release four of the five days, it could end up being another active week for mortgage rates. Accordingly, please maintain contact with your mortgage professional if floating an interest rate and closing in the near future.