Wednesday’s bond market is in rally mode following several favorable events including a significant sell off in stocks. The major stock indexes are posting sizable losses during early trading with the Dow currently down 202 points and the Nasdaq down 41 points. The bond market is currently up 39/32, pushing the 10-year yield down to 2.05%. It has been an extremely active first couple hours of trading with large swings in both bonds and stocks, so we can only guess as to what this will do to this morning’s mortgage rates. Much depends on what time your lender posted rates, but the net result should be somewhere between .500 and .750 of a discount point lower than yesterday’s morning pricing.
September’s Retail Sales report was one of the two important reports that were posted at 8:30 AM ET this morning. The Commerce Department release showed that retail-level sales fell 0.3% last month, falling short of the 0.2% decline that was expected. A secondary reading that excludes more volatile auto sales fell 0.2% when it was expected to rise 0.3%. That is a sizable variance and indicates that consumer spending was weaker than many had thought. Since consumer spending makes up over two-thirds of our economy, the data raised more concern about overall economic growth. Because bonds tend to thrive in weaker economic conditions, this was extremely favorable to the bond market and mortgage rates.
The second report of the morning was September’s Producer Price Index (PPI) that revealed a 0.1% decline in the overall reading and no change in the more important core data that excludes volatile food and energy prices. Both readings were below forecasts, indicating inflationary pressures at the producer level of the economy not only remained subdued, but were softer than analysts were expecting to see. That makes the data favorable for bonds and mortgage rates also.
The third and final relevant report of the day will come at 2:00 PM ET when the Federal Reserve posts their Beige Book. This report details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may extend this morning’s gains and mortgage rates could drop more. If it reveals signs of inflation growing or solid economic activity in many regions, we could see mortgage rates revise higher later today.
Tomorrow has two pieces of economic data being released, but neither are anywhere close to being as important as this morning’s reports were. The first is last week’s unemployment figures at 8:30 AM ET. They are expected to show that 290,000 new claims for unemployment benefits were filed last week. This would be a small increase from the previous week’s 287,000 initial filings. The larger the number of new claims, the better the news it is for bonds and mortgage rates.
The second report of the morning will be September’s Industrial Production data at 9:15 AM ET. This release gives us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.4% increase in output from August’s level, meaning that manufacturing activity rose. A larger than expected increase in production would be negative for bonds and mortgage rates as it would indicate economic strength. A decline in output would be favorable for mortgage shoppers.