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Tuesday’s bond market has opened in positive territory with no significant news from over the long weekend and no relevant economic data to drive trading this morning. The stock markets are starting the shortened week up slightly with the Dow showing a 10 point gains and the Nasdaq up 18 points. The bond market is currently up 6/32, but a bit of weakness in trading late Friday will likely prevent us from seeing much of an improvement in this morning’s mortgage pricing. The financial markets were closed yesterday in observance of the President’s Day holiday, so most lenders were either closed or did not issue new rates yesterday.
There is nothing of importance scheduled for release today, so any intra-day movement in mortgage rates will likely be fueled by a noticeable move in stocks. The rest of the week has five pieces of economic data for the bond market to digest along with the minutes from the most recent FOMC meeting. A couple of the reports are much more important to the financial and mortgage markets than others are.
Tomorrow has three of the items we need to watch. The first will come from the Labor Department at 8:30 AM ET tomorrow when they post their Producer Price Index (PPI) for January. This data measures inflationary pressures at the producer level of the economy and is considered to be one of the key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.2% in the overall reading and a 0.1% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation that makes long-term securities less attractive to investors.
January’s Housing Starts will also be posted early tomorrow morning, giving us an indication of housing sector strength and mortgage credit demand by tracking new housing construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for a decline in construction starts of new housing. That would be favorable news for the bond market and mortgage rates because it would point towards economic weakness. A weak housing sector makes broader economic growth less likely in the near future, making bonds more attractive to investors.
Tomorrow also brings us the release of the minutes from the most recent FOMC meeting. Traders will be looking for any indication of the Fed’s next move regarding monetary policy, particularly discussion about the pace of reducing the Fed’s current bond buying programs and concerns about economic growth. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility in the markets and mortgage rates, or they may be a non-factor. However, they do carry the potential to influence rates so they should be watched.
Overall, I am expecting tomorrow to be the most active day for mortgage rates, but Thursday’s data is also carries enough significance to cause noticeable movement. All of this week’s activities are taking place over only three trading days.