Daily Rate Lock Advisory

Indexes Affecting Rate Lock

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Existing Home Sales from National Assoc of Realtors

The National Association of Realtors will start this week’s economic releases when they post their September Existing Home Sales report at 10:00 AM ET Tuesday. This release will give us an indication of housing sector strength and mortgage credit demand by tracking home resales. It is currently expected to show a small decline in sales, pointing to a slowing housing sector. A large decline would be good news for the bond market since weaker housing makes broader economic growth less likely and causes bonds to be more appealing to investors.

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Consumer Price Index (CPI)

Wednesday’s first report is not only the week’s most important release, but is some of the more influential data we get each month. September's Consumer Price Index (CPI) at 8:30 AM ET will give us inflation readings at the consumer level of the economy. There are two headline readings that we follow, each with a monthly and annual change. The overall reading is expected to have risen 0.6% last month while the more important core reading that excludes volatile food and energy costs is predicted to be up 0.2%. Both are expected to be stronger than August’s year-over-year pace. This would mean inflation was stronger last month than the previous month. Since bonds are less appealing to investors during times of rising inflation, lower than forecasted readings will likely push bond yields and mortgage rates lower Wednesday.

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Fed Beige Book

The Federal Reserve's Beige Book report that summarizes economic activity through the eyes of business contacts within each Fed region is the second release Wednesday. The Fed relies heavily on this data during their FOMC meetings when making monetary policy decisions, so look for a potential reaction during mid-afternoon afternoon trading. It probably will not cause a major sell-off in the stock or bond markets, but the 2:00 PM ET release is still worth watching as it could draw enough of a reaction to change rates slightly.

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Retail Sales

Thursday has the other two major economic reports scheduled. Both September’s Retail Sales report and Producer Price Index (PPI) will be released at 8:30 AM ET Thursday. The Retail Sales data gives us insight into consumer spending habits. This data is so important to the markets because consumer spending makes up over two-thirds of the U.S. economy. If spending is strong, overall economic growth is likely to be stronger, making bonds less attractive to investors. If we see weaker than expected readings in this report, the bond market should respond favorably, pushing mortgage rates lower. Current forecasts show a 0.3% increase in sales. Good news for the bond market and mortgage pricing would be a decline.

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Producer Price Index (PPI)

September’s Producer Price Index (PPI) is Thursday morning’s second release. It is the sister report to Wednesday’s CPI, but tracks inflationary pressures at the wholesale level of the economy instead of the consumer level. Analysts are expecting the overall PPI to be up 0.5% while the core reading rose 0.3%. As with any inflation data, bond traders want to see weaker readings, which should contribute to lower mortgage rates.

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Industrial Production

Closing this week’s calendar is September's Industrial Production data at 9:15 AM ET Friday. This release will give us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. Analysts are predicting a 0.4% rise from August's level, meaning that manufacturing activity strengthened last month. A larger increase in production would be negative for bonds and mortgage rates.

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Corporate Earnings

Also worth noting is that corporate earnings season starts this week, when big-named companies begin releasing their quarterly and annual earnings reports. Strong earnings are good news for stocks and bad news for bonds. Generally speaking, if earnings miss expectations, stocks should lose ground while bonds rally and mortgage rates should move slightly lower. With a number of well-known large banking and financial companies posting this week, stocks could also have a moderate influence on bond trading and possibly mortgage pricing on the days without the key reports being released.

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Overall, Wednesday is the most important day of the week for rates due to the significance the CPI carries in the markets. However, don’t be surprised to see a noticeable change in rates Thursday also because it has two major reports set for release. The calmest day may be Friday, but afternoon swings in the bond market and mortgage pricing have become the norm lately, even with little news to drive trading. In other words, we could see morning and afternoon move in rates multiple days again this week. Accordingly, it would be prudent to keep an eye on the markets if still floating an interest rate and closing in the near future.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

Existing Home Sales from National Assoc of Realtors

Consumer Price Index (CPI)

Fed Beige Book

Retail Sales

Producer Price Index (PPI)

Industrial Production

Corporate Earnings

none

Float / Lock Recommendation