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This week has four pieces of economic data scheduled that was expected to influence mortgage rates in addition to a couple Treasury auctions and the minutes from the most recent FOMC meeting. However, with a resolution to the stalemate in Washington nowhere in sight yet, we likely won’t see most of the week’s economic data. That will leave bond traders to rely on other factors for bond direction and mortgage rate movement.
The relevant economic reports that are scheduled for release but are unlikely to be posted are August’s Goods and Services Trade Balance on Tuesday and Friday’s release of September’s Retails Sales report and Producer Price Index (PPI). Tuesday’s report is not considered to be of high importance to the markets, so it won’t be missed. However, Friday’s data is considered to be key readings of consumer spending and producer level inflation that could have been market-movers.
What we will see this week are the minutes from the most recent FOMC meeting, which was the one that the Fed opted to delay the much-anticipated tapering of their bond purchases. We also will get last week’s unemployment numbers Thursday morning and the University of Michigan’s Index of Consumer Sentiment late Friday morning. The results of these will be magnified because the government shutdown has significantly limited the release of the economic data that was scheduled since the first of the month.
The last FOMC meeting minutes will be posted Wednesday afternoon. These may be a major mover of the markets or could be a non-factor, depending on what they say. However, with little else being posted this week they will likely be more influential than usual. The keys will be concerns over the economy, inflation and the Fed’s next monetary policy move. If Fed members were concerned about the economy continuing to grow, we may see the bond market move higher and mortgage rates lower Wednesday afternoon. It will be interesting to see how much debate and disagreement amongst members took place during the meeting, particularly about tapering QE3. They will be posted at 2:00 PM ET, so any reaction will come during afternoon trading.
Also Wednesday is the first of two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as the auctions are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.
The last event of the week is October’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. Rising confidence indicates consumers feel better about their own financial and employment situations, meaning they are more apt to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related date is watched closely. Good news for the bond market would be a sizable decline in consumer confidence. It is expected to show a reading of 74.5, down from September’s final reading of 77.5.
Overall, I see Wednesday as the key day of the week, although the most movement in the markets and mortgage pricing will probably take place during afternoon hours. We should see more movement in rates Thursday and Friday also even though the reports of those days usually don’t draw high levels of attention. It is the inability to get the key data that is raising the stature of those reports. This could change if something unexpected happens, such as a compromise in Washington D.C. Since that does not appear to be likely in the immediate future, we are left with the reduced activity calendar this week. Still, we can see a fairly significant move in rates if it appears progress is being made in Congress.