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Thursday’s bond market has opened in positive territory despite stronger
than expected economic news. The major stock indexes are beginning the day
with minor weakness. The Dow is currently down 22 points while the Nasdaq
has slipped 3 points. The bond market is currently up 7/32, which should
improve this morning’s mortgage rates by approximately .125 of a discount
point.
The Commerce Department gave us this morning’s big news with the release of
May’s Retail Sales data early this morning. They announced a 0.6% increase
in retail-level sales last month that exceeded forecasts of a 0.3% rise.
This means that consumers spent more than expected, making the data
negative for the bond market and mortgage rates because consumer spending
makes up so much of our overall economy. Softening the news a bit was a
secondary reading that excludes larger and more volatile auto transactions.
It showed a 0.3% increase, matching analysts’ forecasts. Still, the data
points towards stronger economic activity, so we need to consider it bad
news for mortgage rates.
Also posted early this morning was the Labor Department’s weekly
unemployment update. They announced that 334,000 new claims for
unemployment benefits were filed last week, down from the previous week’s
346,000 and short of the 345,000 that was forecasted. Unfortunately for
mortgage shoppers, this is also unfavorable news since it indicates that
the employment sector was a little stronger than many had thought last
week.
Today’s 30-year Treasury Bond auction has the potential to affect this
afternoon’s bond trading and mortgage rates. Results of the sale will be
posted at 1:00 PM ET. Yesterday’s 10-year Note sale was uneventful for the
most part. There wasn’t much to be overjoyed with or too concerned about.
That doesn’t give us anything to base a prediction on for today’s auction,
so we will have to hold our breath and wait for results this afternoon.
Tomorrow has three pieces of economic data for the markets to digest. The
first is one of the two key measurements of inflation that we get each
month. May's Producer Price Index (PPI) will be released at 8:30 AM ET
tomorrow, giving us a measure of 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 one
because it excludes more volatile food and energy prices. A large increase
could raise concerns about inflation rising as soon as the economy gains
some traction. 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 bond
prices lower, pushing their yields upward and bringing mortgage rates higher.
Analysts are expecting to see increases of 0.1% in both readings, signaling
inflation was subdued at the manufacturing level of the economy last month.
May's Industrial Production data will be released at 9:15 AM ET tomorrow
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 rapidly
rising, concerns of manufacturing strength may come into play in the bond
market. A larger increase than the expected 0.1% would indicate the
manufacturing sector is stronger than thought and would likely push
mortgage rates slightly higher.
June's preliminary reading to the University of Michigan's Index of Consumer
Sentiment will close the week’s data late tomorrow morning. This index
measures consumer willingness to spend and usually has a moderate impact on
the financial markets. It is expected to show a reading of 83.0, which
would be a decline from May's 84.5. A smaller than expected reading would
be considered good news for bonds because it would mean that surveyed
consumers were less optimistic about their own financial situations than
thought. That often means they are less likely to make large purchases in the
near future, but since this report is only moderately important it likely
will not influence mortgage rates considerably unless it shows a
significant variance from forecasts.
If I were considering financing/refinancing a home, I would.... Lock if my closing
was taking place within 7 days... Float 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...
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