AM Market Update

Wednesday’s bond market has opened up slightly following favorable inflation data. The stock markets are showing losses during early trading with the Dow down 47 points and the Nasdaq down 7 points. The bond market is currently up 5/32, which should keep this morning’s mortgage rates close to yesterday’s morning pricing. Preventing an improvement in today’s rates is weakness in bonds late yesterday that caused many lenders to revise pricing higher during afternoon trading.

The Labor Department said early this morning that July's Producer Price Index (PPI) was unchanged from June and that the core data reading rose 0.1%. Both readings were below forecasts of 0.3% and 0.2% increases respectively. This means that inflationary pressures at the producer level of the economy were not as strong as many had thought, making the data good news for the bond market and mortgage rates.

Tomorrow has three pieces of economic data that bond traders will be watching. The first is the weekly unemployment update from the Labor Department at 8:30 AM AT. They are expected to announce that 339,000 new claims for unemployment benefits were filed last week. This would be a small increase from the previous week’s 333,000 initial claims and hint that the employment sector weakened slightly. The higher the number of new claims filed, the better the news it is for the bond market and mortgage rates because rising unemployment claims indicates the employment sector is softening, not strengthening. It is worth noting though that since this data tracks only a single week’s worth of new claims, it takes a wide variance from forecasts for it to influence mortgage rates.

The second report of the day tomorrow will be July’s Consumer Price Index (CPI), also at 8:30 AM. It is the sister report to today’s PPI but measures inflationary pressures at the more important consumer level of the economy. Rising inflation erodes the value of a bond’s future fixed interest payments, causing investors to sell them at a discount and pushes yields higher. Since mortgage rates tend to follow bond yields, this has a negative impact on rates. Analysts are expecting to see a 0.2% increase in the overall index and a 0.2% rise in the core data reading. Declines in the readings, especially in the core data, should lead to lower mortgage rates since it would mean inflation is still not a threat to the economy. On the other hand, stronger than expected readings may lead to an increase in mortgage pricing tomorrow.

July's Industrial Production report will be posted at 9:15 AM ET. This data gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important to the markets and can influence mortgage rates slightly. Expectations are for a 0.4% increase in production, indicating some strength in the manufacturing sector. Good news for the bond market and mortgage rates would be a decline in output, signaling sector weakness. However, the CPI report will draw the most attention in the markets tomorrow morning.

 

I would suggest locking in time allows as this is a safety move. Take advantage of any rate float downs after locking.