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Monday’s bond market has opened down slightly partly as a result of stronger than expected economic news. The stock markets are starting the week uneventfully with the Dow down 8 points and the Nasdaq up 2 points. The bond market is currently down 4/32, which will likely push this morning’s mortgage rates approximately .125 of a discount pint higher than Friday’s morning pricing.
Today’s only economic data worth watching was September’s Industrial Production report at 9:15 AM ET. It revealed a 0.6% increase in output at U.S. factories, mines and utilities last month. This was a larger increase than the 0.3% that forecasted and the largest monthly upward move in 7 months, indicating that the manufacturing sector may have been stronger than many had thought. That would make the data negative for the bond market and mortgage rates, but fortunately the data is considered to be only moderately important and has had a minimal impact on today’s rates.
Tomorrow has the bulk of this week’s economic data with three reports scheduled for release that are likely to influence mortgage rates. The first is September’s Retail Sales report at 8:30 AM ET that measures consumer spending. This data is very important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Therefore, any related data is watched closely. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop tomorrow morning. However, stronger than expected sales would fuel optimism about the economy and would likely lead to a stock rally that hurts bonds prices and pushes mortgage rates higher. Current forecasts are calling for a 0.1% decline in retail-level sales, meaning consumers spent a little less last month than they did in August. Good news for the bond market and mortgage pricing would be a larger decline in sales.
September’s Producer Price Index (PPI) is the second key report of the day, also at 8:30 AM ET. This is one of the two very important inflation readings we get each month. The index measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.2% increase in the overall index and a 0.1% rise in the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. A larger than expected increase could raise concerns in the bond market about future inflation, leading to higher mortgage rates tomorrow morning. However, weaker than expected readings should result in bond market strength and lower mortgage pricing.
October’s Consumer Confidence Index (CCI) at 10:00 AM ET is the final report of the day. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show a drop in confidence from last month’s 79.7 reading. That would mean that consumers felt a worse about their own financial and employment situations than last month, indicating they are less likely to make large purchases in the near future. That would be good news for the bond market because consumer spending makes up a significant part of our economy. As long as the reading doesn’t exceed the forecasted 74, we will likely see the bond market react favorably to this report.
Tomorrow also has the first of this week’s two Treasury auctions that have the potential to affect bond trading and mortgage pricing. The first is tomorrow’s 5-year Treasury Note sale, followed by Wednesday’s 7-year Note auction. If those sales are met with a strong demand from investors, particularly Wednesday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor interest may create selling in the broader bond market and lead to upward revisions to mortgage rates.
Overall, it appears tomorrow or Wednesday could be the most active day for mortgage rates due to the importance of the economic data being posted and the adjournment of the FOMC meeting, while Thursday will probably be the lightest. The importance of Friday’s sole report makes it likely to be an active day also, although I suspect the most movement will take place the middle days.