Wednesday’s bond market has opened in negative territory following stronger than expected economic news and comments made by Fed Chair Janet Yellen. The stock markets have surprisingly had little reaction to those events with the Dow up 12 points and the Nasdaq up 11 points. The bond market is currently down 4/32 (2.40%), which should keep this morning’s mortgage rates close to yesterday’s morning levels.
Kicking off today’s busy day was June’s Producer Price Index (PPI) at 8:30 AM ET. The Labor Department announced an increase of 0.4% in the overall reading and a 0.3% rise in the core data. Both readings exceeded forecasts of 0.3% and 0.1% respectively. This means that inflationary pressures at the producer level of the economy were stronger than expected. That makes the data bad news for bonds and mortgage rates but this news has had only a small impact on today’s trading.
June’s Industrial Production data was released mid-morning, revealing a 0.3% increase in output at U.S. factories, mines and utilities. This slightly exceeded forecasts, meaning the manufacturing sector was a little stronger than some analysts were expecting to see. We can consider that bad news for the bond and mortgage markets, but with everything else going on today, it has had little impact on this morning’s mortgage pricing.
The big news of the morning though was Fed Chair Janet Yellen’s semi-annual congressional testimony. Today was day one of the two-day cycle, updating the House Financial Services Committee on the status of the economy and monetary policy. Her prepared statement was released prior to her appearing, so we saw a reaction in the markets early. For the most part, she didn’t say much that had not already been said by her or other Fed members. One key point was her indicating that at least one rate hike should come this year and that rates will remain low for quite some time. It is worth noting though that her comments are based on the assumption that the labor market will continue to strengthen and that inflation moves higher towards their target rate as it currently is still softer than the Fed prefers.
She will repeat this to the Senate Banking Committee at 10:00am ET tomorrow, but we usually see the most movement in the markets and mortgage rates during the first day of this testimony. This is because the speaker’s prepared words for both appearances are quite similar to each other, meaning that day two rarely gives us anything we did not hear during the first day. The general exception is something asked or answered during the Q&A portion of the second day’s appearance.
We have an afternoon event today that we need to watch for also. The Federal Reserve will release its Beige Book report at 2:00 PM ET. This report details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see afternoon moves in the markets and mortgage rates. If it shows signs of softer economic activity, it could lead to bond strength and better mortgage rates later today.
The only relevant economic data tomorrow is the weekly unemployment update that is expected to show 283,000 new claims for unemployment benefits were filed last week. This would be a decline from the previous week’s 297,000 initial claims, meaning the employment sector strengthened last week. Rising claims is considered good news for bonds and mortgage rates. Because this is only a weekly report, it often takes a wide variance from forecasts for it to really affect mortgage rates.