June 12th, 2008 10:46 AM by Lehel Szucs
Thursday's bond market has opened down sharply following early stock gains and stronger than expected economic data. The stock markets are rallying during early trading with the Dow up 141 points and the Nasdaq up 24 points. The bond market is currently down 20/32, which will push this morning's mortgage rates higher by approximately .250 - .375 of a discount point. Limiting this morning's increase in rates was a strong showing during afternoon trading yesterday. However, this morning's losses erased those gains and then some.
Helping contribute to yesterday's late rally was the afternoon release of the Fed Beige Book. It showed overall weak economic growth in most regions of the country. It noted that food and energy prices were rising quickly and could help prevent growth in the economy. The downside of that is rising fuel prices can also lead to inflation in other parts of the economy and make it to the consumer level. But, this news, coupled with an eventual loss of over 200 points in the Dow, led to a rally in mortgage-related bonds. Unfortunately, the gains have been wiped out this morning.
This morning's big news was the release of May's Retail Sales data that showed a 1.0% rise in sales at retail establishments. This was nearly twice the increase that was forecasted and shows that spending was much stronger than expected during the month. The footnote to this reading though is that this was the month that most of the economic stimulus checks went out and their impact is being debated. But another number in the report that also was negative for bonds was an upward revision to April's sales. They were previously announced as a decline of 0.2%, but today's report said they actually rose 0.4%. That indicates that sales were stronger than many had thought over the past two months.
Also worth noting was a larger than expected number of new unemployment claims filed last week. The Labor Depar tment reported that 384,000 new claims for benefits were filed last week, exceeding forecasts and getting very close to the important benchmark of 400,000. That level is another recessionary sign and could lead to further concerns about the economy that may benefit bonds.
There are two reports scheduled for release tomorrow. The first and more important of the two is May's Consumer Price Index (CPI) that measures inflationary pressures at the consumer level of the economy. This is one of the most important reports we see each month. There are two readings of this index, the overall and the core data. The core data is considered to be the more important of the two because it excludes more volatile food and energy prices. A large increase could raise fear in the bond market that inflation is a threat. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond's future fixed interest payments. Rising inflation causes inv estors to sell bonds, driving prices lower and mortgage rates higher. Analysts are expecting to see an increase of 0.5% in the overall index and a 0.2% rise in the core data.
The last report of the week is June's preliminary reading to the University of Michigan Index of Consumer Sentiment. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. It is expected to show a reading of 59.5. A larger then expected decline in consumer confidence would be considered good news for bonds, however, the CPI report is much more likely to have a bigger impact on the markets than this one will.
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.
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