Monday Morning Market UpDate

This week brings us the release of six monthly economic reports for the markets to digest. With very important data scheduled for release three different days and relevant data four of the five days, we will likely see a fair amount of volatility in the markets and mortgage pricing this week.

The first data is one of the most important reports of the week. The Commerce Department will give us October’s Retail Sales figures early tomorrow morning. This data measures consumer spending, which is considered extremely important because it makes up two-thirds of the U.S. economy. It is expected to show a 0.7% rise in spending, meaning consumers spent much more last month than they did in September. This would be considered negative news for bonds because large increases in spending fuels an economic recovery and raises inflation concerns in the marketplace. If tomorrow’s report reveals a smaller than expected increase in spending, bonds should react favorably, pushing mortgage rates lower. If it shows a larger than expected increase, mortgage rates will likely move higher tomorrow.

There are two reports scheduled to be posted Tuesday. The first is October's Producer Price Index (PPI) from the Labor Department, which is one of the two key inflation readings on tap this week. The PPI measures inflationary pressures at the producer level of the economy. 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, the bond market will probably react negatively and should drive mortgage rates higher. If we see in-line or weaker than expected numbers, mortgage rates should fall Tuesday. Current forecasts are calling for an increase of 0.8% in the overall reading and a 0.1% inc rease in the core reading.
Tuesday’s second report is October's Industrial Production data. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.3% increase in production. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this data is not as important as the PPI readings are. A significant surprise in the PPI would likely make this data a non-factor in Tuesday’s mortgage pricing.