Monday’s bond market has opened in positive territory, staying in tune with stocks. The major stock indexes are starting the week with minor gains of 36 points in the Dow and 25 points in the Nasdaq. The bond market is currently up 4/32 (1.93%), which should improve this morning’s mortgage rates by approximately .125 of a discount point over Friday’s morning pricing.
There is nothing of relevance scheduled for release today that is expected to influence mortgage rates. However, the rest of the week brings us the release of eight economic reports that have the potential to affect bond trading and mortgage rates. We also have round two of corporate earnings releases that can significantly impact the stock markets and help direct funds into or away from bonds. Strong earnings reports should fuel a stock rally that pressures bonds and leads to higher mortgage rates. On the other hand, disappointing earnings news should make bonds more attractive and lead to rate improvements.
The Commerce Department will start this week’s activities with the release of March’s Retail Sales data early tomorrow morning. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up over two-thirds of the U.S. economy. Forecasts are calling for a 1.0% increase in sales from February to March. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. However, a weaker than expected level of sales could push bond prices higher and mortgage rates lower tomorrow.
Also early tomorrow morning, the Labor Department will post March’s Producer Price Index (PPI). It will give us an important measurement of inflationary pressures at the producer level of the economy. 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. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments and cause the Fed to raise rates sooner, leading to higher mortgage rates. A good size decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.2% increase in the overall reading and a 0.1% rise in the core data.
Overall, the most important reports are tomorrow’s Retail Sales and Friday’s CPI index, but Wednesday’s Beige Book could cause volatility if it shows significant changes from the last revision. I believe we will see the most movement in mortgage rates either tomorrow or Friday. However, we need to keep a close eye on the stock markets for mortgage rate direction also. With corporate earnings getting pretty busy this week, we may see stocks get fairly active, possibly influencing bond movement and mortgage rates. Therefore, with so much on this week’s calendar, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate and closing in the near future.