Wednesday’s bond market has opened flat with no Thursday’s bond market has opened down slightly following the release of mixed economic news and a fairly calm open in stocks. The major stock indexes are mixed during early trading with the Dow down 15 points and the Nasdaq up 4 points. The bond market is currently down 2/32 (1.97%), which should push this morning’s mortgage rates higher by approximately .125 of a discount point.
There were three pieces of relevant economic data posted at 8:30 AM ET this morning. One was January’s Durable Goods Orders that showed a 2.8% increase in new factory orders for big-ticket products such as appliances, autos and airplanes. This was stronger than the 1.8% increase that was expected, indicating manufacturing sector strength. However, this data is known to be pretty volatile each month so the variance between forecasts and the actual increase wasn’t too concerning. A secondary reading in the report that excludes more volatile and costly transportation-related orders fell short of forecasts by 0.2%. Therefore, we can consider the data neutral for mortgage rates.
The second report of the day was January’s Consumer Price Index (CPI) that is considered to be a key measure of inflation at the consumer level of the economy. It revealed a 0.7% decline in the overall reading and a 0.2% increase in the core data that excludes more volatile food and energy prices. The overall reading was slightly weaker than expected but the core reading was stronger than forecasts. Accordingly, we should consider the news slightly negative for bonds and mortgage rates.
Last week’s unemployment numbers was the last piece of data posted this morning. They came in with 313,000 initial claims for benefits being filed last week. This was more than forecasts were calling for and a good sized increase from the previous week’s revised total of 282,000 new claims. Since rising claims point towards a softening employment sector, today’s report was good news for mortgage rates. Unfortunately, this is only a weekly snapshot, so its impact on this morning’s pricing has been minimal.
We also have today’s 7-year Treasury Note auction to watch. Yesterday’s 5-year Note sale went fairly well but not overly strong. Most of the indicators we use to gauge investor demand in the securities indicated an average or slightly better level of interest. That doesn’t give us much to be optimistic about or concerned with in today’s sale. Results will be posted at 1:00 PM ET, so any reaction will come during afternoon trading. High demand in the sale could lead to strength in the broader bond market and possibly lead to a slight improvement in rates this afternoon.
Tomorrow closes the week with two relevant pieces of economic data. The first of two revisions to the 4th Quarter GDP reading is scheduled for release at 8:30 AM ET. The GDP is considered the benchmark reading of economic growth or contraction because it is the total sum of all goods and services produced in the U.S. Analysts’ forecasts currently call for an annual rate of growth of 2.1%, down from the initial estimate of 2.6% that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a larger downward revision would be good news for bonds and could lead to improvements in mortgage pricing.
The University of Michigan’s revision to their Index of Consumer Sentiment for February will be released just before 10:00 AM ET tomorrow. Current forecasts show this index rising slightly from its preliminary estimate of 93.6. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover. This means it will probably not have a significant impact on mortgage rates, especially with GDP revision being released tomorrow.