Friday’s bond market has opened in positive territory despite stronger than expected results from a couple of this morning’s economic reports. The stock markets are reacting opposite of what one would expect also, pushing the Dow lower by 59 points and the Nasdaq down 4 points. The bond market is currently up 4/32 (1.73%), but I don’t believe we will see much of a change in this morning’s mortgage rates.
The first of this morning’s three pieces of data gave us slightly favorable results with a 0.2% increase in the overall Producer Price Index (PPI) and a 0.1% rise in the core data that excludes more volatile food and energy costs. Analysts were expecting to see increases of 0.3% and 0.1% respectively. The slightly weaker overall reading indicates inflationary pressures were softer than thought and the producer level of the economy. However, the more important core reading matched forecasts, making the report neutral-to-slightly favorable for mortgage rates.
Also at 8:30 AM ET was the release of April’s Retail Sales report. This was the bad news in this morning’s releases. It showed a 1.3% jump in retail level spending, exceeding forecasts of a 0.8% rise. Even a secondary reading that excludes more costly and volatile auto sales was stronger than expectations. This means that consumers spent more last month than thought, making the news negative for bonds and mortgage pricing because it is a sign of solid economic growth.
The final release of the week was the University of Michigan’s Index of Consumer Sentiment for May late this morning. It unexpectedly spiked to a reading of 95.8, greatly exceeding forecasts of 89.7. This reading indicates that consumers were much more confident in their own financial and employment situations and are likely to make a large purchase in the near future. That is bad news for the bond and mortgage markets because it points towards future economic growth.
Next week has only a couple of relevant economic reports scheduled for release in addition to the minutes from the most recent FOMC meeting. There is nothing set for Monday, so expect weekend news and/or stock movement to drive bond trading and mortgage rates. Look for details on next week’s calendar in Sunday evening’s weekly preview.