Friday’s bond market has opened in negative territory following mixed results in this morning’s economic data and a mixed open in stocks. The Dow is currently up 13 points while the Nasdaq has lost 8 points during early trading. The bond market is currently down only 3/32 (2.19%), but we should still see an increase in this morning’s mortgage rates of approximately .250 of a discount point following selling in bonds late yesterday.
We again saw afternoon weakness yesterday attributed to a poor Treasury auction. The 30-year Bond auction went as badly as Wednesday’s 10-year Note sale, causing weakness in the broader bond market after results were posted at 1:00 PM ET. This led to some lenders revising rates slightly higher during afternoon trading. Others may have waited for this morning’s data before reflecting that move, so if your lender made an intraday revision yesterday, you probably are seeing less of an increase this morning.
July’s Producer Price Index (PPI) was the first of today’s three reports. The Labor Department announced at 8:30 AM ET that the overall PPI rose 0.2% last month while the more important core data rose 0.3%. Both readings exceeded their forecasts of a 0.1% increase, indicating that inflationary pressures were stronger at the producer level of the economy than many had thought. Because inflation erodes the value of a bond’s future fixed interest payments and makes a Fed rate increase more likely to be sooner than later, we should consider this data negative for bonds and mortgage rates.
The second release of the morning was July’s Industrial Production report a 9:15 AM ET. It showed a 0.6% increase in production at U.S. factories, mines and utilities. This was twice the increase that was expected and hints that the manufacturing sector was stronger than previously predicted. Since bonds tend to thrive in weaker economic conditions, this report should also be looked at as bad news for mortgage rates.
Closing out the week’s schedule was the University of Michigan’s Index of Consumer Sentiment for August just before 10:00 AM ET. It revealed a reading of 92.2 that was below expectations and a decline from July’s 93.1. Analysts were expecting to see an increase, meaning consumers were more confident in their personal financial and employment situations than they were last month. The decline means they were not and likely will be less apt to make a large purchase in the near future. This is the favorable news in this morning’s batch of data.
Next week brings us a small handful of economic reports that are likely to affect mortgage rates. Only one of those reports is considered to be highly important and it comes mid-week. In addition to the data, we also will get to see the minutes from the last FOMC meeting that could be highly interesting. Nothing of importance is set for Monday. Look for details on the entire week’s calendar in Sunday evening’s weekly preview.