Tuesday’s bond market has opened in negative territory with stocks showing early strength following the long weekend. The Dow is currently up 93 points while the Nasdaq is up 61 points. The bond market is currently down 7/32 (1.77%), which should push this morning’s mortgage rates higher by approximately .125 of a discount point over Friday’s morning pricing.
There is nothing of importance scheduled for release today. The rest of the week brings us the release of five pieces of economic data along with the minutes from the most recent FOMC meeting. The markets were closed yesterday in observance of the President’s Day holiday, but weakness after pricing was posted Friday is contributing to this morning’s increase in rates.
Tomorrow is going to be an active day with four things set for release that may influence mortgage rates. They start when the Labor Department releases their Producer Price Index (PPI) for January at 8:30 AM ET. It measures inflationary pressures at the producer level of the economy and is considered to be one of the key measures of inflation we see each month. 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. It is expected to show a decline of 0.2% in the overall reading and no change in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation that make long-term securities less attractive to investors.
Next up is January’s Housing Starts, also set be posted early tomorrow morning. This report gives us an indication of housing sector strength and mortgage credit demand by tracking new housing construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for a rise in construction starts of new housing. That would be negative news for the bond market and mortgage rates because it would point towards economic gains. A weak housing sector makes broader economic growth less likely in the near future, which makes bonds more attractive to investors. Therefore, the smaller the number of starts, the better the news it is for mortgage rates.
They will be followed by January’s Industrial Production report at 9:15 AM ET. It helps us measure manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.3% increase in production from December to January. A decline in output would be good news and should push bond prices higher, helping to lower mortgage rates tomorrow.
Tomorrow also brings us the release of the minutes from the most recent FOMC meeting. Traders will be looking for any indication of the Fed’s next move regarding monetary policy, particularly when the next rate increase may come. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility tomorrow, or they may be a non-factor. However, they do carry the potential to influence mortgage rates so they should be watched.