Monday’s bond market has opened in positive territory, entirely a result of this morning’s stock sell-off that is being fueled by massive losses in overseas markets last night. The Dow is currently down a whopping 642 points while the Nasdaq is down 112 points. The bond market is currently up 16/32 (1.99%), which should improve this morning’s mortgage rates only .125 – .250 of a discount point.
The global stock sell-off was fueled mostly from China’s economic concerns and significant drop in stocks there last night. Even though today’s 642 point drop in the Dow is concerning, it actually is well off the earlier loss of almost 1,100 points that we saw when the markets first opened. Still, it will be interesting to see where we close the day. Unfortunately, I believe the rest of the day may not be so bond friendly.
There is nothing of importance scheduled today in terms of economic data or other domestic events that traditionally affect bond trading and mortgage rates. We are reacting solely to stock movement this morning. The rest of the week brings us the release of six pieces of relevant data in addition to two Treasury auctions and the annual Jackson Hole Fed conference. There are at least two events or reports scheduled every day of the week except today. Only one of the reports can be considered very important. However, with so much going on we still could see an active week in the financial and mortgage markets.
July’s New Home Sales data is the first report of the week, coming tomorrow morning at 10:00 AM ET. This report will give us another indication of housing sector strength and mortgage credit demand, but tracks only a small portion of all home sales. The majority of U.S. home sales were covered in last week’s Existing Home Sales report. It usually doesn’t have much of an impact on bond prices or mortgage rates unless it varies greatly from forecasts. Current forecasts are calling for an increase in sales of newly constructed homes from June to July. A larger increase in sales would indicate housing sector strength, making the data negative for mortgage rates.
The Conference Board will post their Consumer Confidence Index (CCI) for August at 10:00 AM ET tomorrow also. This index measures consumer sentiment about their personal financial situations, which helps us measure consumer willingness to spend. If consumers are feeling more confident in their own finances and employment, they are more apt to make a large purchase in the near future, fueling economic growth. A decline in confidence would indicate that surveyed consumers probably will not be buying something big in the immediate future. That would be a sign of economic weakness and should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 92.6, which would be an increase from July’s 90.9. The lower the reading, the better the news it is for bonds and mortgage rates.
Overall, we are seeing our stock markets continue their negative reaction to China’s move and concerns about overseas economic growth. This bodes well for mortgage shoppers because stock weakness often causes funds to be shifted into bonds as a safe-haven. However, the improvement in bonds and mortgage pricing is not proportionate to the size of our stock losses over the past week. We are currently down approximately 1,700 points in the Dow since last Monday’s closing level after this morning’s 642 point loss. Despite today’s stock selling, we are seeing an improvement in mortgage pricing that is a typical move, on a day that is far from typical. This leads me to believe that bonds have run out of steam and that some traders may feel this stock selling is only temporary. Accordingly, I am holding the conservative stance towards rate and strongly recommend you maintain contact with your mortgage professional if still floating an interest rate.