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Wednesday’s bond market initially opened fairly flat following the release
of economic data that gave us mixed readings but has since moved into
positive ground. The stock markets are showing minor gains with the Dow up
26 points and the Nasdaq up 13 points. The bond market is currently up
4/32, but due to weakness in trading late yesterday, we will likely see
little change in this morning’s mortgage rates if comparing to Tuesday’s
morning pricing.
This morning had three economic reports posted that tend to influence
mortgage rates, with two of them considered to be highly important. The
first came from the Commerce Department, who reported early this morning
that retail-level sales rose 0.4% last month. This exceeded forecasts of a
0.1% increase, indicating consumers spent more in October than many
analysts had predicted. Even a secondary reading that excludes more
volatile and higher priced auto sales was stronger than thought (+0.2% vs
+0.1%). That makes the data negative for the bond market and mortgage rates
because consumer spending makes up over two-thirds of the U.S. economy.
Stronger levels of spending fuels economic growth that makes long-term
securities, such as mortgage-related bonds, less attractive to investors.
Next was October's Consumer Price Index (CPI) from the Labor Department,
also a key piece of data at 8:30 AM ET. They announced that the overall CPI
reading fell 0.1% last month while the more important core data that
excludes volatile food and energy prices rose 0.1%. Both readings were
slightly lower than what analysts were expecting, meaning inflationary
pressures at the consumer level of the economy remain subdued and weaker
than predicted. Since inflation erodes the value of a bond’s future fixed
interest payments, it is a significant problem for long-term securities.
Accordingly, the bond market tends to react positively to signs of weak
inflation. That is the case today, however, it more or less offset the
negative news from the sales data and prevented a positive open in bonds.
The National Association of Realtors completed this morning’s relevant
releases with their Existing Home Sales report at 10:00 AM ET. It revealed
a decline in home resales of 3.2%, indicating a softening housing sector
last month. This was a larger decline than was expected, making the data
favorable for the bond and mortgage markets.
We have more to come this afternoon with the release of the minutes from
last month’s FOMC meeting. Traders will be looking for any indication of
the Fed's next move regarding monetary policy or potential tapering of
their current bond purchases. They will be released at 2:00 PM ET, so any
reaction will come during afternoon trading. This release is one of those
that may cause some volatility in the markets after they are posted, or
could be a non-factor. If they show anything surprising, we may see some
movement in rates later today.
Tomorrow has two pieces of relevant economic data but one is much more
important than the other. October's Producer Price Index (PPI) will be
released at 8:30 AM ET and is the more important of the two reports. This
index is similar to today's CPI, except it measures inflationary pressures
at the manufacturing level of the economy. The overall reading is expected
to show a 0.2% decline from September's level while the core data is
expected to rise 0.1%. Weaker than expected readings would be good news for
bonds and mortgage rates, while larger than forecasted increases could lead
to higher mortgage rates tomorrow morning.
We will also get last week's unemployment figures from the Labor Department
early tomorrow morning. They are expected to announce that 333,000 new claims
for unemployment benefits were filed last week. This would be a decline
from the previous week's total of 339,000, indicating a small sign of
strength in the employment sector. Ideally, the bond market would like to
see a large increase in new claims, meaning the employment sector was
weaker than expected. However, since this weekly report tracks only a
single week's worth of initial claims, it usually takes a large variance
from forecasts to see the data influence mortgage rates.
If I were 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... Lock if my closing was taking place between
21 and 60 days... Lock if my closing was taking place over 60 days from
now...
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