Wednesday’s bond has opened in positive territory following mostly favorable economic news. The stock markets are showing relatively minor losses during early trading with the Dow down 45 points and the Nasdaq down 6 points. The bond market is currently up 7/32 (2.12%), but due to strong selling late yesterday we should still see an increase in this morning’s mortgage rates of approximately .250 of a discount point over Tuesday’s morning pricing.
This morning had three economic reports released that were worth watching. The first and most important was January’s Producer Price Index (PPI) at 8:30 AM ET. It showed a 0.8% decline in the overall reading when analysts were expecting only a 0.4% drop. The better news was the 0.1% decline in the more important core data that excludes more volatile food and energy prices. Forecasts were calling for a 0.1% increase in the core reading. These readings indicate that inflationary pressures at the producer level of the economy eased last month, making the data good news for bonds and mortgage rates.
January’s Housing Starts report was also released early this morning, revealing a 2.0% decline in new home construction groundbreakings. The results point towards weakness in the new home portion of the housing sector. However, this was pretty close to forecasts and since the report is not considered to be of high importance to the markets, it has had minimal influence on this morning’s trading or mortgage pricing.
The third and final report of the morning was January’s Industrial Production data at 9:15 AM ET. This report showed a 0.2% increase in production at U.S. factories, mines and utilities. That fell short of the 0.4% increase that was expected, meaning factory output was not as strong as many had thought. Because this is just a moderately important report and it still showed an increase, we should consider the results neutral-to-slightly positive for rates. But in fact, it has had no impact on this morning’s mortgage rates.
We also will get the minutes from the most recent FOMC meeting later today. 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.
Tomorrow has two pieces of economic data set for release, but neither is considered to be highly important to the markets. First up is last week’s unemployment figures at 8:30 AM ET. They are expected to show that 295,000 new claims for unemployment benefits were filed last week. This would be a decline from the previous week’s 304,000 initial claims. The higher the number of new claims, the better the news it is for mortgage rates as rising claims is a sign of employment sector weakness. However, because this report tracks only a single week’s worth of new claims, it usually takes a surprise spike or drop for it to noticeably affect mortgage rates.
The final piece of data this will be January’s Leading Economic Indicators (LEI) at 10:00 AM ET tomorrow. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.3% increase, meaning that economic activity may rise in the near future. A smaller than expected increase would be good news for the bond market and mortgage rates. Although, don’t expect this report to be a market mover either.