Wednesday’s bond market has opened up slightly following yesterday’s sell-off. The stock markets are mixed but calm with the Dow up 20 points and the Nasdaq down 3 points. The bond market is currently up 4/32 (2.27%), but due to significant selling late yesterday we should see this morning’s rates approximately .250 of a discount point higher than Tuesday’s morning pricing.
August’s Consumer Price Index (CPI) was this morning’s only relevant economic data. It came at 8:30AM ET but showed no surprises with a 0.1% decline in the overall reading and a 0.1% rise in the core data that excludes more volatile food and energy prices. This means that inflationary pressures at the consumer level of the economy remained subdued last month. Since both readings pegged forecasts, we can consider the data neutral news for bonds and mortgage rates.
Tomorrow has two pieces of economic data that are worth watching. The first is August’s Housing Starts at 8:30 AM ET. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a decline in new home construction starts between July and August. I don’t believe this data will have any influence on mortgage rates, partly because of what will follow during afternoon hours.
Last week’s unemployment numbers will also be posted early tomorrow morning. They are expected to show 275,000 new claims for unemployment benefits were filed last week. This would be the same as the previous week’s initial claims, indicating the employment sector remained flat last week. Since rising claims hints at a weakening employment sector, the larger the number the better the news it is for mortgage rates. Although, it is worth noting that because this is only a weekly snapshot, it usually takes a surprise increase or decline for the report to noticeably affect rates. This is especially true tomorrow since we have some key events coming during afternoon trading.
The week’s biggest events will take place tomorrow afternoon, starting with the FOMC meeting that may or may not bring an increase in key short-term interest rates. The Fed events start with the 2:00 PM ET adjournment of the FOMC meeting that began today along with revisions to the Fed’s economic projections. The general consensus is that Janet Yellen and company will not change key short-term interest rates at this meeting, but there are plenty of market participants that feel a move is coming tomorrow. This meeting will also be followed by a press conference with Fed Chair Yellen at 2:30 PM ET. All Fed meetings are highly important, but this one is particularly significant for the financial and mortgage markets. I personally believe key rates will be left alone at this meeting, but we should get some direction on when that first move will come. I also believe we will see a great deal of volatility in the markets and mortgage rates tomorrow afternoon. Therefore, please proceed cautiously if still floating an interest rate.