Friday’s bond market has opened in positive territory following weaker than expected economic news. The stock markets are showing sizable losses again with the Dow down 116 points and the Nasdaq down 44 points. The bond market is currently up 11/32 (2.27%), which should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point.
The Commerce Department gave us the first of today’s three economic reports with the release of October’s Retail Sales figures at 8:30 AM ET. It showed a 0.1% increase in retail-level spending when analysts were expecting to see a 0.3% rise. A secondary reading that excludes more volatile and pricey auto sales also fell short of expectations. This means consumers spent less last month than many had thought, making the data very good news for bonds and mortgage rates. This is because softer consumer spending restricts broader economic growth and bonds are more attractive to investors in weaker economic conditions.
Also at 8:30 AM ET was October’s Producer Price Index (PPI) that showed a 0.4% decline in the overall reading and a 0.3% decline in more important core data that excludes food and energy prices. Both readings were well below forecasts of a 0.1% increase for each. This indicates inflationary pressures at the producer or manufacturing level of the economy was much softer than predicted. That is good news for bonds because inflation devalues a bond’s future fixed interest payments, making them less appealing to investors. The weaker inflation may also alter the Fed’s plans for short-term rate hikes since it was already running below their desired pace.
The last report of the week was November’s preliminary reading of the University of Michigan’s Index of Consumer Sentiment just before 10:00 AM ET. It came in at 93.1, exceeding forecasts of 92.0. This is bad news because rising consumer confidence in their financial and employment situations usually translates into stronger levels of spending that fuels economic growth. Fortunately, this is only a moderately important report and hasn’t derailed this morning’s positive open in bonds.
Next week isn’t too busy in terms of the number of economic reports scheduled for release. However, there are a couple of important events on the calendar including a key consumer-level inflation reading and the minutes from the most recent FOMC meeting that may shed more insight on the Fed’s thought process regarding monetary policy. There is nothing of importance set for Monday. Look for details on next week’s schedule in Sunday evening’s weekly preview.