Tuesday’s bond market has opened in positive territory following the release of mostly favorable economic news. The stock markets are showing moderate losses with the Dow down 56 points and the Nasdaq down 31 points. The bond market is currently up 8/32 (1.93%), but due to some selling late yesterday we will likely see this morning’s mortgage rates remain close to yesterday’s early pricing.
February’s Retail Sales data was the first of two important economic reports that were released this morning. The Commerce Department announced a 0.1% decline in sales early this morning. That pegged forecasts, as did the 0.2% decline in a secondary reading that excludes more volatile and costly auto transactions. The surprise came in a sizable downward revision to January’s sales that indicated they were 0.6% weaker than previously thought (+0.2% vs -0.4%). January’s activity is somewhat aged at this point but will still be reflected in quarterly reports that will be posted next month. Therefore, we can consider the data slightly good news for bonds and mortgage rates.
The second release of the morning also came at 8:30 AM ET when February’s Producer Price Index (PPI) was posted. It showed a 0.2% decline in the overall reading and no change in the core data. The overall reading matched expectations, but the more important core reading was just short of the 0.1% increase that was expected. This means that inflationary pressures were a little softer at the producer level of the economy last month than some had thought. That makes the report slightly favorable for mortgage rates also.
Tomorrow is going to be a very busy day with three pieces of economic data being released during morning hours and key Fed events taking place in the afternoon. The most important of the morning batch is February’s Consumer Price Index (CPI) at 8:30 AM ET. It is the sister release of today’s PPI but measures inflationary pressures at the very important consumer level of the economy. The CPI is expected to show a 0.2% decrease in the overall index and a 0.1% rise in the more important core data that excludes volatile food and energy prices. As with the PPI, weaker than expected readings will be good news for bonds and mortgage rates tomorrow.
Also early tomorrow morning, February’s Housing Starts data will be released. This report tracks construction starts of new housing. It doesn’t usually cause much movement in mortgage rates and is considered one of the less important reports we see each month. It is expected to show an increase in housing starts, indicating growth in the housing sector. Good news for the bond market and mortgage rates would be a sizable decline in new starts, but unless we see a large variance from forecasts the data likely will not lead to a noticeable move in mortgage pricing.
The third and final morning release will be February’s Industrial Production report at 9:15 AM ET. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.3% decline from January’s level. A larger decline would be considered favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness and broader economic growth would be more difficult if manufacturing activity is slipping.
Tomorrow’s Fed events start with the 2:00 PM ET adjournment of the two-day FOMC meeting. The general consensus is that Fed Chairman Yellen and company will not raise key short-term interest rates at this meeting, although some market participants feel it is possible. Even if no move is made, we will be closely watching the post-meeting statement for changes in verbiage that could indicate when their next move is likely to take place. Any surprises could heavily influence the markets and mortgage rates tomorrow afternoon.
The FOMC meeting is ending a little earlier than the traditional 2:15 PM because it is one of the meetings that will be followed by a press conference with Chairman Yellen. The meeting will adjourn at 2:00 PM, which is also when the Fed will update their economic projections. They will be followed by a press conference at 2:30 PM. These events will probably lead to afternoon volatility in the markets and mortgage rates tomorrow.