Tuesday’s bond has opened in negative territory following the holiday weekend that had the markets closed yesterday. The stock markets are starting the week with minor losses of 36 points in the Dow and 3 points in the Nasdaq. The bond market is currently down 5/32 (2.06%), which with Friday’s afternoon weakness should push this morning’s mortgage rates higher by approximately .125 of a discount point if comparing to Friday’s morning pricing.
There is nothing scheduled for release today that is relevant to mortgage rates. We are seeing some reaction to Greece news as their bailout showdown gets closer to coming to a head. It is safe to say that if stocks make a move this afternoon, bonds and mortgage rates will react. However, the general negative tone in the bond market of recent may pressure bonds without a noticeable move in the major stock indexes. Therefore, proceed cautiously if still floating an interest rate, especially since the most important day of the week for rates is clearly tomorrow.
Tomorrow morning has three of this week’s four pieces of monthly economic data that is likely to affect mortgage rates in addition to the FOMC minutes. The Labor Department will release their Producer Price Index (PPI) for January early tomorrow morning. 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 0.4% in the overall reading and a 0.1% rise 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.
January’s Housing Starts will also be posted early tomorrow morning, giving 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 decline in starts of new housing. That would be favorable news for the bond market and mortgage rates because it would point towards economic weakness. A weak housing sector makes broader economic growth less likely in the near future.
The third and final economic report of the day will be January’s Industrial Production data at 9:15 AM ET. It gives us a measurement of 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 0.4% increase in production from December to January. A decline in output would be good news and should push bond prices higher, lowering mortgage rates tomorrow, assuming the PPI the doesn’t reveal any surprises.
Tomorrow also brings us the release of the FOMC minutes. Traders will be looking for any indication of the Fed’s next move regarding monetary policy, particularly discussion about their first bump to key short-term interest rates. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility in the markets, or they may be a non-factor. However, they do carry the potential to influence mortgage rates so they should be watched.