Friday’s bond market has opened well in positive territory following a much weaker than predicted key economic reading. The stock markets are reacting to the same news, pushing the Dow lower by 152 points and the Nasdaq down 27 points. The bond market is currently up 24/32 (1.67%), which should improve this morning’s mortgage rates by approximately .250 of a discount point.
The first of this morning’s three relevant economic reports was the initial 4th quarter GDP reading that showed the economy grew at a 2.6% annual pace during the last three months of 2014. This was well below forecasts of a 3.2% rate and means the U.S. economy was not as strong as many had thought. That is clearly favorable news for bonds because long-term securities tend to thrive in weaker economic conditions. And on the same token, what is good for bonds is usually negative for stocks. Hence the bond rally and stock sell-off this morning, leading to an improvement in mortgage rates.
The second release of the morning was practically a non-factor in today’s early trading and mortgage pricing. The Labor Department announced the 4th Quarter Employment Cost Index (ECI) rose 0.6%. This was slightly above forecasts and indicates wage pressures were stronger than expected. Still, this usually is not a highly influential report and has not had an impact on this morning’s rates.
The final economic report of the week was the revised University of Michigan Index of Consumer Sentiment reading for January. It was posted just before 10:00 AM ET, revealing a 98.1 reading. This was very close to the preliminary and forecasted reading of 98.2, showing that consumer sentiment changed little since the preliminary estimate. That made the data neutral and irrelevant to today’s mortgage rates.
Next week has a handful or reports scheduled for release but it is not the number of releases that is of concern. The week’s calendar includes two highly important releases including the almighty monthly Employment report. Monday has two of those reports with December’s Personal Income and Outlays in addition to January’s ISM index. Both can move mortgage rates, so it is likely we will not see a calm start to the week. Look for details on next week’s events in Sunday evening’s weekly calendar.