Morning Market Update

Tuesday’s bond market has opened in negative territory following encouraging news out of Washington D.C. over the long weekend. The stock markets are showing losses as they were able to react to that same news during trading yesterday. The Dow is currently down 76 points during early trading while the Nasdaq has lost 10 points.

There is no relevant economic data scheduled for release today. There were a handful or reports that were set to be posted this week, but several of them will be delayed due to the government shutdown. It will prevent September’s Consumer Price Index (tomorrow), Housing Starts and Industrial Production reports (Thursday) from being released. The CPI measures inflation at the consumer level of the economy, so it is considered very important to the bond market and will be missed. The other two releases are generally considered to be moderately important to the bond and mortgage markets but still can affect mortgage rates if they show significant surprises.

This morning’s bond weakness is mostly a result of rumors of progress in Washington that may end the 15-day shutdown in the immediate future and push back the debt ceiling issue until early next year. It appears that the parties are considering a deal that they all can live with, but it is too soon to consider it a sure thing. Therefore, we should remain cautious towards the markets and mortgage rates and expect to see some volatility as news evolves on the matter. Generally speaking, a resolution would be negative for bonds and mortgage rates and positive for stocks. If a hurdle pops up that makes the deal less likely to pass the House, Senate and White House, then bonds should strengthen enough to improve mortgage pricing.

The Fed Beige Book is one of the reports that we should get regardless of the shutdown status because the Fed is self-funded. It will be posted at 2:00 PM ET tomorrow, so any reaction will come during afternoon trading. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region. Its’ contents are relied upon heavily by the Federal Reserve when determining monetary policy at their FOMC meetings. If it reveals stronger or noticeably weaker signs of economic growth from the last release, we could see bond prices move and mortgage rates revise tomorrow afternoon. Signs of stronger growth would be negative for rates while much weaker conditions than the previous release would be favorable for the bond market and mortgage shoppers.

Overall, look for news out of Washington to be the biggest influence on bond trading and mortgage rates since we will not be getting some of the regularly-scheduled economic data. Partly because a resolution appears to be possible in the immediate future, I believe there is much more risk by floating an interest rate than potential reward if closing in the next couple weeks. Therefore, please proceed cautiously if still floating a rate and maintain contact with your mortgage professional, especially until we see an end to the stalemate in Congress.

 

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