October 19th, 2009 5:25 PM by Lehel S.
Monday's bond market has opened relatively flat as stock take center stage this morning. The major stock indexes are showing gains with the Dow up 95 points and the Nasdaq up 18 points. These gains are important for stocks because after crossing the 10,000 benchmark Thursday, the Dow closed below it Friday. Many wonder whether that threshold can be held. The result is a flat bond market until that answer comes. The bond market is currently nearly unchanged from Friday's close, but we will still likely see an improvement in today's mortgage rates of approximately .250 of a discount point due to strength late Friday.
There is nothing of importance scheduled to be released today. We will get a couple of important earnings releases including Texas Instruments and Apple, Inc, but they will be posted after the markets close today. Therefore, we won't see the stock markets react to them until tomorrow morning. Generally speaking, stronger than expected earning s results will likely lead to stock gains. As stocks move higher, investors will probably shift funds out of bonds and into stocks, leading to bonds moving lower and higher mortgage rates. Stock selling should be favorable to bonds and cause mortgage rates to move lower.
The rest of the week brings us the release of five economic reports. September's Producer Price Index (PPI) is the first report of the week and the most important of the five. It will be posted early tomorrow morning. This index measures inflationary pressures at the producer level of the economy. Analysts are expecting to see no change in the overall index and a 0.1% 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. However, weaker than expected readings should lead to lower rates tomorrow.
September's Housing Starts will also be released tomorrow morning, but it is one of the week's least important reports. It gives us an indication of housing sector strength and mortgage credit demand, but usually is not a mover of mortgage rates. It is expected to show an increase in starts of new homes last month. If it varies greatly from forecasts, we could see the bond market have some reaction to the news, but probably not enough to cause much movement in rates. The PPI report should be much more of an influence on mortgage rates tomorrow than this housing report will.
Overall, look for tomorrow to be the most important day of the week with the PPI being released. However, if we see a significant rally or sell-off in stocks any particular day, it may end up bringing us the biggest single day change in mortgage pricing. The negative tone in bonds over the past two weeks may be subsiding somewhat, but I believe we still need to remain cautious toward s mortgage rates. If the corporate earnings releases are generally weaker than forecasts, I may change to a less conservative stance. But until there is some strong evidence that the worst may be behind us, it is prudent to proceed cautiously if still floating an interest rate.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Lock 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 2009