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Tuesday’s bond market has opened flat following no significant surprises in
today’s economic data and a fairly calm morning in stocks. The major stock
indexes are showing minor losses with the Dow down 21 points and the Nasdaq
down 9 points. The bond market is currently nearly unchanged from
yesterday’s close, but we should still see an improvement in this morning’s
mortgage rates of approximately .125 of a discount point due to strength in
trading late yesterday.
June's Consumer Price Index (CPI) was the first piece of economic data
posted this morning. It revealed a 0.5% increase in the overall reading a
0.2% rise in the core data. The overall reading exceeded forecasts of a
0.35 increase but the more important core reading that excludes volatile
food and energy costs matched expectations. Therefore, we should consider
the data to be neutral to slightly negative for the bond market and
mortgage rates.
At 9:15 AM ET this morning, we got June's Industrial Production data. That
release showed a 0.3% increase in output at U.S. factories, mines and
utilities last month. It pegged forecasts of 0.3%, so it indicates minor
growth in manufacturing and utilities, but not any more than what analysts
were expecting to see. Accordingly, it has had little impact on today’s
trading or mortgage pricing.
Tomorrow morning has one piece of economic data that is relevant to
mortgage rates, but it isn’t known to be highly important or influential.
The Commerce Department will post June's Housing Starts report at 8:30 AM
ET that will give us an indication of housing sector strength by tracking
construction starts of new homes. Analysts are currently expecting to see a
fairly large increase in new starts. However, I don't see this data having
much of an impact on mortgage rates unless it varies greatly from
forecasts.
The big news of the day will be the first part of Fed Chairman Bernanke’s
semi-annual update about the economy and monetary policy before Congress.
He will speak before the House Financial Services Committee tomorrow at
10:00am ET and the Senate Banking Committee Thursday. Analysts and traders
will be looking for the Fed's opinion on the status of the economy and
their expectations of future growth, inflation and unemployment concerns
that will lead to the Fed's next monetary policy move. Of particular
interest will be the status of the Fed’s current $85 billion monthly bond
buying program (QE3). These topics should create a great deal of volatility
in the markets during the prepared testimony and the question and answer
session that follows. If he indicates that inflation may become a point of
concern or anything that hints at rapid economic growth, we can expect to
see the bond market fall and mortgage rates rise tomorrow afternoon. The
QE3 tapering topic has been much discussed and there has been plenty of
speculation about it that has led to a great deal of volatility recently in
the financial and mortgage markets. Therefore, I am fairly certain that if
it is not addressed in Chairman Bernanke’s prepared statement it will come
up during Q&A. And with it will probably be further volatility in the
bond market and mortgage rates.
Tomorrow afternoon brings us the release of the Fed Beige Book report at
2:00 PM ET. This report is named simply after the color of its cover, but
is considered to be important to the Fed when determining monetary policy
during their FOMC meetings. It details economic activity and conditions by
Federal Reserve region throughout the U.S. Since Fed Chairman Ben
Bernanke's testimony to Congress hours before gave us a recent update, I
don't think we will see any significant surprises in this report. If this
is accurate, we will likely see little movement in mortgage rates during
afternoon, at least from this report.
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... Float if my closing was taking place over 60 days from
now...
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