Updated on July 16, 2018 10:34:29 AM EDT
This morning’s sole economic report was Junes Retail Sales report at 8:30 AM ET. The Commerce Department announced a 0.5% increase in retail-level sales last month. This pegged expectations, but a secondary reading that excludes more costly and volatile auto sales showed a slightly stronger increase than forecasted (+0.4% vs 0.3%). In addition, sizable upward revisions to May’s previously announced figures means consumers spent more that month than many had thought also. Because consumer spending makes up over two-thirds of the U.S. economy and bonds tend to thrive in weaker economic conditions, we should consider this data negative for mortgage rates.
Tomorrow has two events scheduled that we will be watching, one of which is much more important than the other. Junes Industrial Production data will be posted at 9:15 AM ET, giving us a measurement of manufacturing sector strength. This data tracks output at U.S. factories, mines and utilities. It is expected to show a 0.5% rise in production, indicating that the manufacturing sector strengthened last month. That would basically be bad news for bonds and mortgage rates. However, this report is considered to be only moderately important, so any reaction will be minimal.
The major event tomorrow will be day one of the Fed’s semi-annual congressional update on the economy and monetary policy. Fed Chairman Powell will speak to the Senate Banking Committee at 10:00 AM ET tomorrow and the House Financial Services Committee Wednesday. His testimony will be broadcast and watched very closely. Analysts and traders will be looking for the Feds opinion on the status of the economy and their expectations of future growth, inflation, unemployment and need for rate hikes. These topics should create a great deal of volatility in the markets during the prepared testimony and the Q&A session that follows. The prepared statement is often released prior to appearing, so it is possible that we may see a market reaction to this before the day’s economic data is released. If his words indicate that inflation is a concern or hints at rapid economic growth and more rate hikes than currently expected, we can expect to see the bond market fall and mortgage rates rise tomorrow. Comments that point towards concern about economic growth should cause a favorable reaction in bonds.
Overall, tomorrow has the potential to be the most active day of the week, depending on what type of reaction the markets have to the Feds congressional testimony. If there are any surprises in his testimony or answers, the reaction in the markets will probably be strong. The calmest day will likely be Friday, although corporate earnings can heavily drive trading any day. Better than expected earnings would be good for stocks and have a negative impact on bonds. Disappointing earnings should fuel bond buying and lower mortgage rates. With so much going on this week, it is highly recommended that you maintain contact with your mortgage professional if closing soon and still floating an interest rate.
©Mortgage Commentary 2018