Tuesday’s bond market has opened in positive territory following weaker than expected economic data. The major stock indexes aren’t doing anything to hurt bonds either by being in negative ground in early trading. They are showing minor losses of 31 points in the Dow and 11 points in the Nasdaq. The bond market is currently up 10/32 (2.02%), which should improve this morning’s mortgage rates by approximately .125 of a discount point.
The Commerce Department gave us the first of this morning’s two relevant reports. At 8:30 AM ET they posted September’s Durable Goods Orders report that showed a 1.2% decline in new orders for big-ticket products. These are items that are expected to last three or more years and include appliances, electronics and airplanes. This was very close to the 1.3% decline that was expected and considering the traditional volatility in this data we can label it as a match. The good news came in a secondary reading that strips out transportation-related orders such as new airplanes. That reading showed a 0.4% drop when analysts were expecting to see a small increase. Since the data does give some indication of weaker than expected manufacturing activity, we can consider this report slightly favorable news for mortgage rates.
October’s Consumer Confidence Index (CCI) was posted at 10:00 ET today, revealing a reading of 97.6. This was a sizable decline from September’s revised reading of 102.6 and well below forecasts of 102.5. That means surveyed consumers were not nearly as optimistic about their own financial and employment situations this month as many had thought. Because waning confidence usually translates into weaker levels of consumer spending and economic growth, this is good news for bonds and mortgage rates.
Tomorrow has two events taking place, both during afternoon trading. The first is the 5-year Treasury Note auction results at 1:00 PM ET. If this type of sale is met with a strong demand from investors, bond prices often rise during afternoon trading. However, I don’t think we will see too much of a reaction in tomorrow’s auction because of the second event of the day that is much more important to the broader markets.
The second event of the day will be the FOMC meeting adjournment at 2:00 PM ET. Some market participants feel this is when the Fed will make their first increase to key short-term interest rates since 2006. Since even the Fed has indicated they expect a rate hike before the end of the year, suspense is building that it will come at this meeting. There is only one more meeting scheduled this year, so if it doesn’t happen tomorrow the odds rise sharply it will come at December’s meeting. It is my opinion that we will not see a move at this meeting. I think December is the earliest with a decent chance it will not come until early 2016. Look for plenty of reaction and volatility to the post-meeting statement during mid-afternoon trading tomorrow.