Thursday’s bond market has opened in positive territory again as the rollercoaster ride in the markets continue. Stocks are still in selling mode with the Dow down 168 points and the Nasdaq down 60 points. The bond market is currently up 14/32 (2.08%), but due to a significant pullback late yesterday afternoon you likely will not see an improvement in this morning’s rates.
The markets were extremely volatile yesterday with both stocks and bonds in huge swings between highs and lows of the day. More troubling to mortgage borrowers was a rapid and sizable drop in bond prices (pushing yields upward) right before trading closed. Most lenders issued multiple intra-day rate revisions yesterday with improvements during morning trading and increases during afternoon hours being the majority. During most sessions we can track rate changes by moves in the markets and some lenders that are more active and quicker to react than others. But yesterday was simply chaos with the number and frequency of the changes that were issued. Overall, I believe we should see this morning’s rates be approximately .250 – .375 of a discount point higher than yesterday’s morning pricing. However, that may not be the case for all lenders because many made significant and preemptive moves to allow for overnight changes.
It is worth noting what is causing this craziness in the markets. Primarily, concerns about the global economy, fueled by weaker economic data from overseas, are causing stocks to sell. Contributing to that momentum was weaker economic data here (Retail Sales), Ebola concerns and softer corporate earnings that are driving stocks lower, creating a safe haven move to bonds. However, that flight to safety unwound late yesterday even though stocks remained weak, which is a major concern in my opinion and cause to proceed extremely cautiously if still floating an interest rate.
This morning had two pieces of economic data for the markets to digest, but both went relatively unnoticed. The first was last week’s unemployment figures at 8:30 AM ET that showed only 264,000 new claims for unemployment benefits were filed last week. This was much lower than the 290,000 that was expected and a sizable drop from the previous week’s 287,000 initial claims. That indicates a strengthening employment sector, making the data negative for bonds and mortgage rates.
September’s Industrial Production data was posted at 9:15 AM ET. It revealed a 1.0% increase in output at U.S. factories, mines and utilities. Analysts were calling for only a 0.4% increase, meaning manufacturing activity was stronger than many had thought. That also makes the data stock friendly and bad for bonds.
Tomorrow has two more reports that may affect mortgage rates, although neither is considered highly important. I suspect stocks will heavily influence bond trading and mortgage pricing yet again. September’s Housing Starts will be released at 8:30 AM ET, but probably will not have significant impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show an increase in new home starts between August and September. I believe we need to see a significant surprise in this data for it to have an impact on tomorrow’s mortgage rates.
The last release of the week will be posted by the University of Michigan just before 10:00 AM ET tomorrow. Their Index of Consumer Sentiment for October will give us an indication of consumer confidence, which helps us measure consumers’ willingness to spend. If consumer confidence in their own financial situations is rising, they are more apt to make large purchases. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and can impact the financial markets. It is expected to show a reading of 84.0, which would mean confidence slipped from September’s level of 84.6. That would be considered favorable news for bonds and mortgage rates because waning consumer spending translates into slower economic growth.