June 15th, 2009 10:34 AM by Ron Mastrodonato
This week is fairly busy with five economic reports scheduled to be released. Two of the five are considered to be of high importance to the markets and mortgage rates. The remaining three are of interest to the markets but likely will not cause a large change in mortgage rates unless they vary greatly from forecasts.
The first data of the week comes Tuesday when there are three reports scheduled to be posted. The day's reports are a broad spectrum of data ranging from housing figures to manufacturing output to an important inflation reading. Their importance to the markets also is a wide variety. The first report of the day is May's Housing Starts that tracks starts of new home projects. It is the week's least important report and likely will not affect mortgage rates unless its results vary greatly from the 5.5% increase that has been forecasted.
The second is one of the two highly important reports of the week. May's Producer Price Index (PPI ) will also be posted early Tuesday morning. It helps us measure inflationary pressures at the producer level of the economy. There are two readings of this index, the overall and the core data. The core data is considered to be the more important of the two because it excludes more volatile food and energy prices. A large increase could raise concern about inflation rising as soon as the economy pulls out of the recession. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond's future fixed interest payments. Rising inflation causes investors to sell bonds, driving prices lower and mortgage rates higher. Analysts are expecting to see an increase of 0.6% in the overall index and a 0.1% rise in the core data. It will not take much of a variance from forecasts for the markets to react, which would most likely lead to changes in mortgage rates.
The third and final piece of data scheduled for T uesday is May's Industrial Production. This report will be released at 9:15 AM ET and is considered to be moderately important. It measures output at U.S. factories, mines and utilities, giving us a fairly important measurement of manufacturing sector strength. If it reveals that production is rising, concerns of manufacturing strength may come into play in the bond market. A larger than expected 0.8% decline would indicate that the manufacturing sector is weaker than expected and should help push mortgage rates lower. That is assuming that the PPI doesn't surprise us.
Wednesday's only data is the week's most important and arguably the single most important report we see each month. This is when we will get May's Consumer Price Index (CPI). It is very similar to Tuesday's PPI, but measures inflationary pressures at the more important consumer level of the economy. It is expected to show a 0.3% rise in the overall reading and a 0.1% increase in the core data. Larger than expected increases will most likely lead to noticeable upward changes to mortgage rates Wednesday.
May's Leading Economic Indicators (LEI) will be posted late Thursday morning. The Conference Board, who is a New York-based business research group, will post this data. It attempts to predict economic activity over the next three to six months. If it shows rapidly rising levels of activity, bond prices will probably drop, pushing mortgage rates higher Thursday morning. But, a weaker than expected reading could lead to lower mortgage pricing. It is expected to show a 0.9% increase.
Overall, look for Tuesday to be the big day of the week. Not just because it brings the release of three of the five reports, but also because it brings us the PPI that is considered to be a key inflation reading. Wednesday is also very important with the CPI being posted, so look for the most movement in rates during the middle part of the week.
If I we re 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... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
©Mortgage Commentary 2009