Wednesday’s bond market has opened in negative territory despite early weakness in stocks and mixed economic news. The Dow is currently down 38 points while the Nasdaq has lost 41 points. The bond market is currently down 9/32 (2.34%), which will likely push this morning’s mortgage rates higher by approximately .125 – .250 of a discount point.
This morning’s only economic data was October’s Housing Starts at 8:30 AM ET. The Commerce Department reported that new home construction starts fell 2.8% last month, falling short of expectations. That is a good sign because it hints at housing sector weakness, not growth. However, a secondary reading that tracks new permits issued and gives us an indication of future construction starts exceeded forecasts. That changed the data from favorable for mortgage rates to neutral.
The minutes from the last FOMC meeting will be posted later today. 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 this afternoon.
Tomorrow actually has four reports scheduled that have the potential to affect mortgage rates. The first is the most important of the three. That is October’s Consumer Price Index (CPI) from the Labor Department at 8:30 AM ET. The CPI measures inflationary pressures at the consumer level of the economy and is one of the more important reports the bond market sees each month. If it reveals stronger than expected readings, indicating that inflationary pressures are rising at the consumer level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see a 0.1% decline in the overall reading and a 0.1% increase in the core data.
Also at 8:30 AM ET will be the weekly unemployment update. It is expected to show that 285,000 new claims for unemployment benefits were filed last week. This would be a decline from the previous week’s 290,000. The higher the number of initial claims, the better the news it is for the bond and mortgage markets because rising claims indicates a softening employment sector. However, since this is a weekly report instead of a monthly or quarterly tracking period, it usually takes a wide variance from forecasts for the data to influence mortgage rates.
The third report of the morning will be October’s Existing Home Sales data from the National Association of Realtors at 10:00 AM. It gives us a measurement of housing sector strength and mortgage credit demand by tracking home resales in the U.S. This report is expected to show little change, meaning the housing sector was flat last month. That would be relatively good news for the bond market and mortgage pricing, but unless it shows a significant surprise, it will likely not have a major impact on mortgage rates.
The final report of the week will come from the Conference Board, also at 10:00 AM ET tomorrow, when they release their Leading Economic Indicators (LEI) for October. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning economic activity will likely rise fairly quickly over the next couple of months. Generally speaking, this would be bad news for bonds. However, since this data is considered only moderately important, its results need to miss forecasts by a wide margin from forecasts for it to affect mortgage rates.