April 15th, 2009 7:29 AM by Lehel Szucs
Tuesday's bond market has opened in positive territory after this morning's economic data revealed much weaker than expected readings. The stock markets are showing losses with the Dow down 49 points and the Nasdaq down 6 points. The bond market is currently up 10/32, which should improve this morning's mortgage rates by approximately .125 - .250 of a discount point.
There were two pieces of important economic data posted this morning and both gave us favorable results. The Commerce Department said that sales at retail establishments in the U.S. fell 1.1% last month. This was well off forecasts of a 0.3% rise and indicates that consumers are not spending nearly as much as thought. That is good news for bonds and mortgage rates because consumer spending makes up two-thirds of the U.S. economy. When consumer spending is softening, economic activity slows, creating a favorable environment for bonds and longer-term securities.
The second report of the day was March's Producer Price Index (PPI), which also gave us surprising results. The overall index fell 1.2% when it was expected to remain unchanged from February's level. But the more important core data, that excludes volatile food and energy prices, did not change. It was expected to rise 0.1%, meaning that prices paid at the producer level of the economy were lower than analysts had expected. This eases inflation concerns and makes bonds more appealing to investors.
Tomorrow brings us the release of three reports to watch. The first is the sister report of today's PPI. March's Consumer Price Index (CPI) will be released early tomorrow morning. This index is very similar to today's release, but tracks prices at the more important consumer level of the economy. This is one of the most important pieces of data we see each month, so stronger than expected readings will most likely lead to higher mortgage rates. Current forecasts are calling for an incr ease of 0.2% in the overall index and 0.1% in the core data.
The second report is March's Industrial Production data at 9:15 AM ET. It gives us a measurement of output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for a decline in production of 0.9%. Since signs of a weakening economy are considered favorable to bonds and therefore mortgage rates, a larger decline would be good news for mortgage pricing. However, the CPI is by far the most important data of the day and will likely be the most influential on tomorrow's rates.
The Federal Reserve will post its Fed Beige Book report at 2:00 PM ET tomorrow afternoon. This report, which is named simply after the color of its cover, details economic conditions throughout the U.S. by region. Since the Fed relies heavily on it during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises.
If I were considering financing/refinancing a home, I would.... Lock 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 2009