Tuesday’s bond market has opened in negative territory despite weaker than expected economic news. The stock markets are showing moderate gains during early trading, pushing the Dow higher by 52 points and the Nasdaq up 11 points. The bond market is currently down 7/32 (2.20%), which should worsen this morning’s mortgage rates by approximately .125 of a discount point.
The Commerce Department gave us the first of two reports this morning with the release of August’s Retail Sales report. It showed that retail level spending rose 0.2% last month, falling just short of the 0.3% that was expected. A secondary reading that tracks sales without more volatile and pricy auto transactions showed a 0.1% rise when 0.2% was expected. These readings indicate that consumer spending was a little softer than many had thought. That makes the data good news for bonds and mortgage rates. Unfortunately, the data is not impressing bond traders this morning as they appear to be preparing for the Fed events later this week.
August’s Industrial Production data was posted at 9:15 AM ET, revealing a 0.4% decline in output at U.S. factories, mines and utilities. This was a larger drop than the 0.2% that analysts were expecting to see, hinting at softness in the manufacturing sector. This allows us to also consider the news favorable for mortgage rates, although it also has had little influence on this morning’s trading.
Since this week’s FOMC schedule ends on Thursday instead of the traditional day of Wednesday, tomorrow’s only worthwhile news will be August’s Consumer Price Index (CPI) at 8:30AM ET. This report is considered to be a key indicator of inflation at the consumer level of the economy. There are two readings in the report- the overall index and the core data reading that excludes more volatile food and energy prices. Current forecasts show a 0.1% decline in the overall reading and a 0.1% rise in the more important core reading. The weaker the readings, the better the news it is for bonds and mortgage rates because rising inflation makes long-term investments such as mortgage-related bonds less attractive to investors.