This week has five 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. There is nothing scheduled to be posted Monday or Friday, so the middle part of the week will likely be the most active.
The 3rd Quarter Employment Cost Index (ECI) will be released at 8:30 AM ET Tuesday. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.5%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week. Therefore, it will likely take a large variance from forecasts for this report of have a noticeable influence on mortgage pricing.
Wednesday has four events scheduled that we need to watch, including two of the week’s more important economic reports. The Commerce Department will give us October’s Retail Sales figures early Wednesday morning. This data measures consumer level or retail spending. It is considered extremely important to the markets because it makes up over two-thirds of the U.S. economy. It is expected to show a 0.1% increase in retail-level spending, meaning consumers spent just a bit more last month than they did in September. A larger increase in spending would be considered negative news for bonds because rising spending fuels economic growth and raises inflation concerns in the bond market. If Wednesday’s report reveals a decline in spending that indicates consumers spent less than thought, bonds should react favorably, pushing mortgage rates lower. If it shows an unexpected increase, mortgage rates will likely move higher.
The second report of the morning will be the release of October’s Consumer Price Index (CPI) from the Labor Department, which is one of the two key inflation readings on tap this week. 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. 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. 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 no change in the overall reading and a 0.2% increase in the core data.
October’s Existing Home Sales data will be posted by the National Association of Realtors late Wednesday morning. 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 a small decline in sales, meaning the housing sector weakened slightly last month. That would be 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.
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 or potential tapering of their current bond purchases. 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’s only monthly report is October’s Producer Price Index (PPI) at 8:30 AM ET. This index is similar to Wednesday’s CPI, except it measures inflationary pressures at the manufacturing level of the economy. 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 larger than forecasted increases could lead to higher mortgage rates Thursday morning.
Overall, I am expecting Wednesday to be the most active day for mortgage rates with three economic reports and the FOMC minutes set for release, but Thursday could be a little volatile also. The calmest day will probably be Monday while Friday should be a close second unless something unexpected transpires. The yield on the benchmark 10-year Treasury note closed last week just above 2.70%, which appears to be somewhat of a support level for the market. That means there is more of a possibility of it moving higher than breaking below and since mortgage rates tend to follow bond yields we could see higher mortgage rates before getting much of an improvement. Therefore, I strongly recommend proceeding cautiously if still floating an interest rate and closing in the near future.