Tuesday’s bond market has opened in positive territory following the release of this morning’s economic reports. The stock markets are not reacting the same with the Dow down 54 points and the Nasdaq down 31 points. The bond market is currently up 19/32 (1.86%), which should improve this morning’s mortgage rates by approximately .250 of a discount point.
There were two important pieces of economic data posted this morning. The first was March’s Retail Sales data at 8:30 AM ET. The Commerce Department announced an increase in sales of 0.9%, falling just shy of the 1.0% that was forecasted. Also, a secondary reading that tracks sales without more volatile and pricey auto transactions rose 0.4% when analysts were expecting to see a 0.7% increase. These readings indicate that consumers spent less than expected last month, making the data good news for bonds and mortgage rates.
The second report of the day was March’s Producer Price Index (PPI) that also was posted early this morning. This Labor Department report showed that the overall PPI rose 0.2% as did the more important core data. The core reading excludes more volatile food and energy prices, leaving analysts with more stable data to gauge inflationary pressures at the producer level of the economy. The overall reading matched expectations but the core reading slightly exceeded forecasts. Therefore, we should consider the data slightly negative for bonds and mortgage rates. Fortunately though, market participants are focusing more on the sales data than PPI during early trading.
Tomorrow has two more pieces of economic data that we will be watching. The first of the day will be March’s Industrial Production data at 9:15 AM ET. It tracks output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for a decline in production of 0.3%. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing. Signs of manufacturing sector strength are considered negative news for mortgage rates, so a larger decline in output would be favorable news for the bond market and mortgage shoppers.
Also tomorrow is the afternoon release of the Federal Reserve’s Beige Book report. This report is named simply after the color of its cover but details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising from the last update would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be ideal for mortgage rates.