Tuesday’s bond market has opened well in positive territory following mixed economic data and significant selling in stocks. The stock markets are in selling mode this morning due to economic data and disappointing earnings news, combined with skeleton trading staff because of the storm in the Northeast. This has the Dow down 294 points and the Nasdaq down 83 points. The bond market is currently up 18/32, which should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point. Weakness in trading late yesterday is preventing more of an improvement if comparing to Monday’s morning pricing.
The Commerce Department gave us this week’s first relevant data with the release of December’s Durable Goods Orders at 8:30 AM ET. It revealed a 3.4% decline in new orders at U.S. factories for big-ticket products such as appliances, electronics and airplanes. Even though this headline number is known to be quite volatile, this was still a pretty wide variance from forecasts of a 0.6% increase. A secondary reading that excludes more pricy and volatile airplane and other transportation orders showed a 0.8% decline when analysts were expecting to see a 0.7% increase. That also supports the headline number in indicating the manufacturing sector was softer than many had thought last month, making this report good news for bonds and mortgage rates.
January’s Consumer Confidence Index (CCI) was released at 10:00 AM ET, showing a surprising reading of 102.9. This was much higher than analysts were calling for and a sizable jump from December’s 93.1. In fact, it was the strongest reading since August 2007 and indicates that surveyed consumers were much more optimistic about their own financial and employment situations this month than nearly anyone had thought. That is bad news for bonds and mortgage rates because rising confidence means consumers are more apt to spend, fueling economic growth.
Today’s third piece of data was the least important of the morning’s batch but did show a sizable difference between forecasts and its actual results. The Commerce Department gave us December’s New Home Sales figures late this morning. They showed an 11.6% rise in sales of newly constructed homes, greatly exceeding forecasts of an increase of 2.7%. This means the new home portion of the housing sector was much stronger than expected last month. Therefore, we should consider it bad news for bonds and mortgage rates.
There is no economic data scheduled for release tomorrow that is expected to influence mortgage pricing. We do however have two afternoon events that could, with one being much more important than the other. The first afternoon event is the 5-year Treasury Note auction results at 1:00 PM ET. If the sale was met with a strong demand from investors, the broader bond market may improve during early afternoon trading. If there was a lackluster interest, we could see bond selling and higher mortgage rates shortly after.
This week’s two-day FOMC meeting that begins today will adjourn at 2:00 PM ET tomorrow. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed’s change in sentiment about the economy and when the first increase to short-term rates will be made. There is a decent possibility of seeing some afternoon volatility in the markets due to the post-meeting statement. However, I would be surprised if the statement revealed any significant surprises or changes to sentiment on the Fed’s monetary policy plans.