October 14th, 2008 9:26 AM by Lehel Szucs
Tuesday's bond market has opened down sharply following yesterday's enormous gain in stocks. The bond market was closed yesterday in observance of the Columbus Day holiday, but the stock markets were open. The result was a 963 point gain in the Dow that was the biggest percentage daily gain in 75 years. That rally carried over to this morning's early trading but has since lost steam.
The Dow is currently down 40 points after being up approximately 400 points earlier. The Nasdaq, which closed higher by 194 points yesterday and was up 50 points this morning, is now down 30 points. The bond market is currently down 27/32, which will likely push this morning's mortgage rates higher by approximately .250 of a discount point.
There is no relevant data scheduled for release today. The rest of the week brings us the release of seven economic reports that are of interest to the mortgage market. It also gets heavy in quarterly corporate earnings, whic h could cause significant movement in the stock markets again. The earnings results could affect bond trading as investors move funds into stocks if the reports are good. The other possibility is that the earnings reports would generally disappoint, meaning investors may move funds out of stocks and into bonds as a safe-haven. The latter would be good news for the bond market and mortgage rates. I suspect we will get results that should be favorable to bonds, so I am shifting to a float recommendation.
The first pieces of data come tomorrow morning, which are two of the week's more important releases. The first is September's Retail Sales report. This data is very important to the markets because it measures consumer spending by tracking sales at retail establishments in the U.S. Since consumer spending makes up two-thirds of the U.S. economy, any related data is considered to be highly important. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop. However, stronger than expected sales could fuel a stock rally and push mortgage rates higher. Current forecasts are calling for a 0.7% decline in sales.
September's Producer Price Index (PPI) is the second report of the day. This index measures inflationary pressures at the producer level of the economy and is also considered to be of high importance to the markets. Analysts are expecting to see a decline of 0.4% in the overall index and a 0.2% rise in the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. A larger than expected increase could fuel inflation concerns in the bond market and push mortgage rates higher. But, weaker than expected readings should lead to lower rates, especially if the sales report doesn't give us stronger than expected results.
Also scheduled for release tomorrow is the Fed Beige Book duri ng afternoon trading. This data details economic conditions throughout the U.S. by region. It is relied upon heavily by the Federal Reserve during FOMC meetings when determining monetary policy. If it reveals stronger signs of inflation from the last release, we could see mortgage rates revise higher shortly after its 2:00 PM ET release.
If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
©Mortgage Commentary 2008