Friday’s bond market has opened well in positive territory following mostly favorable economic news and a sizable sell-off in stocks again. The selling in stocks is creating a flight-to-safety move into bonds as investors try to avoid the volatility. This has pushed the Dow down by 346 points while the Nasdaq has lost 112 points. The bond market is currently up 17/32 (2.03%), which should improve this morning’s mortgage rates by approximately .250 of a discount point if comparing to Thursday’s morning pricing.
The first of this morning’s four economic reports was December’s Retail Sales data at 8:30 AM ET. The Commerce Department announced a 0.1% decline in retail-level sales last month, falling short of the 0.1% increase that was expected. Even a secondary reading that excludes more volatile and expensive auto sales was weaker than predicted (-0.1% vs +0.3%). Those readings mean consumers did not spend as much as many analysts were expecting. Since consumer spending makes up over two-thirds of our economy, this is a sign that overall economic growth may not be as strong as many had thought. That makes bonds more attractive to investors and helps keeps mortgage rates lower.
Also at 8:30 AM was December’s Producer Price Index (PPI). It showed a 0.2% decline in the overall reading and a 0.1% increase in the core data. The overall reading was a little weaker than expected but the core reading matched forecasts. Therefore we can consider the data neutral to slightly favorable for bonds and mortgage rates.
December’s Industrial Production report was posted at 9:15 AM ET, revealing a 0.4% decline in output at U.S. factories, mines and utilities. That was a larger decline than the 0.2% that was expected, hinting that manufacturing activity may be softer than predicted. Because softening manufacturing activity is a sign if a slowing economy, we should also consider this data good news for mortgage shoppers.
The final report of the week came just before 10:00 AM ET when January’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment was released. This was the sole bad news in today’s batch of releases. It showed a reading of 93.3 that exceeded forecasts of 92.6 and was an increase from December’s reading. The increase indicates surveyed consumers were more optimistic about their own financial and employment situations than they were last month. Because rising confidence usually means consumers are more apt to spend, the rise is considered counterproductive to lower mortgage rates.
Next week is a holiday-shortened week due to Monday’s Martin Luther King Jr. Day. All financial and mortgage markets will be closed for the holiday and reopen Tuesday morning. There is no data set for release Tuesday either, leaving all of the week’s releases to come over three days. Look for details on next week’s events in Sunday evening’s weekly preview.