Wednesday’s bond market has opened in negative territory following mostly unfavorable economic news. Stocks are helping to pressure bonds with the Dow up 177 points and the Nasdaq up 53 points. The bond market is currently down 15/32 (1.82%), which should push this morning’s mortgage rates slightly higher than yesterday’s morning pricing.
The first of today’s three economic reports was January’s Producer Price Index (PPI) at 8:30 AM ET. It showed the overall reading with a 0.1% increase when analysts were expecting to see 0.2% decline. The more important core data that excludes more volatile food and energy costs showed similar results with a 0.4% increase, exceeding expectations of no change from December’s level. These readings indicate that inflationary pressures were stronger at the producer level of the economy than many had thought, making the data bad news for inflation-sensitive securities such as mortgage-related bonds.
January’s Housing Starts report was also released at 8:30 AM, revealing a 3.8% decline in new home groundbreakings last month. This was well off of forecasts that were calling for an increase in new home starts. The decline is a sign of weakness in the new home portion of the housing sector. This allows us to consider the data good news for bonds and mortgage rates. Unfortunately, this report is not considered highly important, so its impact on today’s trading and rates has been minimal.
The final piece of economic data for the day was January’s Industrial Production report at 9:15 AM ET. This report tracks output at U.S. factories, mines and utilities, giving us a measurement of manufacturing sector strength. Today’s release showed a 0.9% jump in output, exceeding forecasts of a 0.3% rise. That is also bad news for bonds and mortgage pricing because it hints that manufacturing activity may be rebounding after showing signs of weakness recently.
We also have the minutes from the most recent FOMC meeting being posted later today. 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, or they may be a non-factor. However, they do carry the potential to influence mortgage rates so they should be watched.
Last week’s unemployment figures is tomorrow’s only data, coming at 8:30 AM ET. They are expected to show that 274,000 new claims for unemployment benefits were filed last week. This would be an increase from the previous week’s 269,000 initial filings. The larger the number of new claims, the better the news it is for bonds and mortgage rates because rising claims hint at a softening employment sector.