This week brings us the release of seven pieces of economic data that are
relevant to the bond market and mortgage pricing. There is no relevant data
scheduled for release tomorrow, so look for the stock markets to drive bond
trading and mortgage rates. There is data scheduled for every other day
with most of the reports coming the latter part of the week but the key
releases are set for the middle days. This means that the week may start
off slow, however, we are likely to see plenty of movement in mortgage
rates as the week progresses.
July's Retail Sales data early Tuesday morning is the first and one of the
highly important reports scheduled this week. This data is very important
to the financial and mortgage markets because it helps us measure consumer
spending. Since consumer spending makes up over two-thirds of the U.S.
economy, any data related to it can cause a fair amount of movement in the
markets. A smaller than expected increase would indicate that consumers are
spending less than previously thought, pointing towards slower economic
growth. This is good news for the bond market and mortgage rates as it
eases inflation concerns and makes long-term securities such as
mortgage-related bonds more attractive to investors. Current forecasts are
calling for an increase of 0.2% in retail-level sales. Ideally, the bond
market would like to see a decline in sales although no change from June
would be construed as favorable.
One of the week's key inflation indexes will be Wednesday’s only relevant
data. July's Producer Price Index (PPI) will give us an indication of
inflationary pressures at the producer level of the economy at 8:30 AM ET.
There are two readings in the report- the overall index and the core data
reading. The core data is more important because it excludes more volatile
food and energy prices that can change significantly from month to month.
Current forecasts call for a 0.3% rise in the overall reading and a 0.2%
increase in the core data. A larger increase in the core data could push
mortgage rates higher Wednesday morning. If it reveals weaker than expected
readings, we may see bond prices rise and mortgage rates improve as a
result.
The PPI will be followed by the even more important Consumer Price Index
(CPI) early Thursday morning. The Consumer Price Index is one of the most
important reports we see each month as it measures inflation at the
consumer level of the economy. As with the PPI, there are also two readings
in the report. Analysts were expecting to see a 0.2% increase in the
overall index and a 0.2% rise in the core data reading. Declines in the
readings, especially in the core data, should lead to lower mortgage rates
since it would mean inflation is still not a threat to the economy. On the
other hand, stronger than expected readings will likely lead to an increase
in mortgage pricing Thursday
July's Industrial Production is Thursday's second report with a release
time of 9:15 AM ET. It gives us a measurement of manufacturing sector
strength by tracking output at U.S. factories, mines and utilities. It is
considered to be moderately important to the markets and can influence
mortgage rates slightly. Expectations are for a 0.4% increase in
production, indicating some strength in the manufacturing sector. Good news
for the bond market and mortgage rates would be a decline in output,
signaling sector weakness. However, the CPI report will draw the most
attention Thursday.
Friday has the remaining three pieces of data scheduled, but none are
considered to be highly important to mortgage rates. July's Housing Starts
is the first at 8:30 AM ET, which will give us an indication of housing
sector strength and future mortgage credit demand. It usually doesn't cause
much movement in mortgage rates unless it varies greatly from forecasts and
is expected to show a fairly sizable increase in construction starts of new
homes. The lower the number of starts, the better the news for the bond
market, as it would indicate a weaker than expected housing sector.
Employee Productivity and Costs data for the second quarter will also be
posted early Friday morning. It will give us an indication of employee
output per hour. High levels of productivity are believed to allow the
economy to grow without fears of inflation. I don't see this being a big
mover of mortgage rates either, but it may influence rates slightly during
morning trading. Analysts have predicted no change in productivity during
the second quarter and a 0.3% decline in labor costs. A sizable increase in
productivity reading and a larger than expected drop in costs could help
improve bonds, contributing to lower mortgage rates Friday.
The final report of the week will come from the University of Michigan, who
will release their Index of Consumer Sentiment for August at 9:55 AM Friday.
This index gives us a measurement of consumer willingness to spend. If
confidence is rising, then consumers are more apt to make large purchases,
helping fuel economic growth. By theory, a drop in confidence should boost
bond prices, but this data is considered moderately important and carries
much less significance than some of the week's other reports. Analysts are
expecting to see a reading of 85.3, which would be a slight increase from
July's final reading of 85.1. The smaller the reading, the more concerned
consumers are in their own financial situations and the better the news for
mortgage rates.
Overall, I am expecting Tuesday or Thursday to be the most important days
of the week. Tuesday's Retail Sales report and Thursday's CPI are the two
single most influential reports scheduled over the next five days. Since
Tuesday has the Retail Sales data and consumer level inflation is not
expected to be an immediate threat, I am leaning towards it as the day that
we will see the most movement in mortgage rates. I am expecting to see the
least movement tomorrow, unless the stock markets stage a significant rally
or sell-off. With so much going on this week, I strongly recommend
maintaining contact with your mortgage professional if still floating an interest
rate.
If I were considering financing/refinancing a home, I would.... Lock if my
closing was taking place within 7 days... Lock if my closing was taking
place between 8 and 20 days... Lock if my closing was taking place between
21 and 60 days... Float if my closing was taking place over 60 days from
now...
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