Wednesday’s bond market has opened in negative territory despite weaker than expected inflation news and sizable stock losses. The stock markets are in selling mode with the Dow down 174 points and the Nasdaq down 44 points. The bond market is currently down 4/32 (2.20%), which should push this morning’s mortgage rates higher by approximately .125 of a discount point.
July’s Consumer Price Index (CPI) was posted early this morning, revealing a 0.1% increase in both the overall and core readings. Both were 0.1% lower than forecasts, indicating inflationary pressures at the consumer level were softer than expected. That makes the data favorable for bonds and mortgage rates, but traders to seem to be too impressed this morning.
This afternoon we get the minutes from the last FOMC meeting. There is a pretty good possibility of the markets reacting to them following their release. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy, economic growth and the Fed’s plans for raising short-term interest rates. Since the minutes will be released at 2:00 PM ET, look for a reaction during mid-afternoon trading. This is one of those events that can cause significant movement in rates after its release or be a non-factor, so be prepared for a move, but not surprised if the impact on rates is minimal.
There are three relevant reports scheduled for release tomorrow. Last week’s unemployment figures will be released at 8:30 AM ET. They are expected to show that 272,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s total of 274,000. Declining initial claims are a sign of employment sector strength, so the larger the number of claims, the better the news it is for mortgage rates. Although, because this is only a weekly reading we usually need to see a significant variance from forecasts for it to impact mortgage rates.
July’s Existing Home Sales report will be posted at 10:00 AM tomorrow morning. The National Association of Realtors will release this report, giving us a measurement of housing sector strength and mortgage credit demand. It covers a very high percentage of all home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts’ forecasts. It is expected to show a decline from June’s sales, meaning the housing sector softened last month. This would generally be good news for the bond market and mortgage rates because a strengthening housing sector makes broader economic growth more likely. But unless the decline is much larger than current forecasts, the report will likely have a minimal impact on tomorrow’s mortgage pricing.
The Conference Board is a New York-based business research group that will post its Leading Economic Indicators (LEI) for Jul late tomorrow morning also. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening more than thought. However, a weaker reading means that the economy may not grow as much as predicted, making stocks less appealing to investors. This also eases inflation concerns in the bond market and could lead to slightly lower mortgage rates Thursday. It is expected to show an increase of 0.2% in the index, indicating modest economic growth over the next couple of months. It will take a sizable difference between forecasts and its actual reading for this report to noticeably influence mortgage rates.