Tuesday’s bond market has opened in positive territory even though this morning’s key inflation data gave us unfavorable results. The stock markets are showing minor gains with the Dow up 22 points while the Nasdaq has gained 23 points. The bond market is currently up 5/32 (2.32%), which should improve this morning’s mortgage rates by approximately .125 of a discount point.
October’s Producer Price Index (PPI) was posted at 8:30 AM ET this morning, revealing a 0.2% increase in the overall reading and a 0.4% rise in the core data. Both readings exceeded forecasts of -0.2% and +0.1% respectively, indicating inflationary pressures at the producer level of the economy are stronger than many had thought. Because bonds tend to thrive in weaker economic conditions with low inflation, we should consider this data negative for the bond and mortgage markets. Fortunately though, the news has drawn little reaction during early trading.
Tomorrow morning has one economic report that may have an impact on mortgage rates. That will be October’s Housing Starts at 8:30 AM tomorrow. This report gives us an indication of housing sector strength, but usually does not cause a noticeable in mortgage rates. I don’t expect this month’s version to be any different unless it varies greatly from analysts’ forecasts. It is expected to show an increase in starts of new homes, meaning the new home portion of the housing sector strengthened last month.
Also worth noting is the release of the minutes from the last FOMC meeting tomorrow afternoon. Traders will be looking for any indication of the Fed’s next move regarding monetary policy, particularly when the first rate increase will come. They will be released at 2:00 PM ET, so any reaction will come during afternoon trading. This release is one of those that may cause some volatility in the markets after they are posted, or could be a non-factor. If they show anything surprising, we may see some movement in rates Wednesday afternoon, but it is more likely there will be little reaction.