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Thursday’s bond market has opened in positive territory even though we got mixed results in this morning’s economic data. The stock markets are showing relatively minor losses with the Dow down 42 points and the Nasdaq down 3 points. The bond market is currently up 9/32, which with yesterday’s late strength should improve this morning’s mortgage rates by approximately .250 of a discount point if comparing to Wednesday’s morning pricing.
Yesterday’s afternoon posting of the Fed Beige Book that gives us snapshots of economic activity in each Federal Reserve Bank region didn’t reveal too many surprises. It showed modest to moderate overall economic growth in most regions. The Fed uses this report during its FOMC meetings to help determine monetary policy and as a result, it does draw some attention from markets analysts and traders. What the report revealed wasn’t a surprise and showed very similar data that the previous version did. Still, the bond market moved higher after the release, possibly as a relief it lacked signs of stronger economic growth. Since bond yields move in opposite direction of price and mortgage rates follow bond yields, this led to some lenders improving rates slightly late yesterday.
The Labor Department announced early this morning that December’s Consumer Price Index (CPI) rose 0.3% while the core data rose only 0.1%. Analysts were expecting to see increases of 0.3% and 0.2% respectively, meaning core inflationary pressures were slightly weaker last month at the consumer level of the economy than many had thought. This is generally favorable news for the bond market because rising inflation erodes the value of a bond’s future fixed interest payments, making them less appealing to investors. Today’s report did show an increase, but the core reading that excludes more volatile food and energy prices was weaker than expected. Therefore, we should consider the data slightly favorable for the bond market and mortgage rates.
Also posted early this morning was last week’s unemployment numbers. The Labor Department announced that 326,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s revised total of 328,000 initial claims. Forecasts were calling for a small increase that would have signaled the employment sector softened last week, not strengthened as the decline shows. Accordingly, the data should be considered slightly negative for the bond and mortgage markets. Although, the impact on today’s trading has been minimal because this report gives us only a single week’s worth of new filings. The markets are more concerned with monthly and quarterly data than weekly results.
Fed Chairman Ben Bernanke is set to speak around 11:10 AM ET in Washington. His topic of conversation appears more geared towards broader central bank issues and challenges than the current and future strength of our economy. Whenever he speaks, the markets watch and his words can be highly influential. However, I don’t see today’s appearance having the potential to be a market mover or heavily influence mortgage rates. We may get some tidbits across the wires, but I am not too concerned about what he may or may not say.
The week’s remaining three mortgage-relevant economic reports will be staggered tomorrow morning. The first data of the day is December’s Housing Starts at 8:30 AM. It helps us measure housing sector strength and future mortgage credit demand by tracking construction starts of new homes. It is not considered to be one of the more important releases each month, so I don’t see it causing much movement in mortgage rates but does carry the potential to affect trading and rates if it shows a significant surprise. Analysts are expecting to see a decline in new home starts between November and December.
December’s Industrial Production report has a release time of 9:15 AM ET tomorrow. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.3% from November’s level. A weaker reading would be considered good news for bonds and could help lower mortgage rates as it would point towards a manufacturing sector that was softer than many had thought.
The final report of the week is January’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. It will be posted just before 10:00 AM ET tomorrow. The index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to slightly change mortgage rates. If consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. Good news would be a reading weaker than the 83.0 that is expected and even better would be lower than December’s 82.5, meaning confidence slipped this month.