July 13th, 2009 5:52 PM by Lehel Szucs
Monday's bond market has opened flat as traders prepare for this week's events. The stock markets are starting the week with early strength as the Dow has gained 80 points and the Nasdaq is up 9 points. The bond market is nearly unchanged from Friday's close, but we will likely see an improvement in today's mortgage rates of approximately .125 of a discount point due to strength in trading Friday afternoon.
There is no relevant economic news scheduled for release today. The rest of the week brings us the release of five important economic reports for the bond market to digest. Several of these reports are considered to be of high importance, meaning we will likely see volatility in the financial markets and mortgage pricing over the next several days. There are also plenty of corporate earnings releases scheduled for the stock markets this week along with the minutes from the last FOMC meeting.
The first relevant data comes early to morrow morning when the Labor Department posts June's Producer Price Index (PPI). The PPI is very important because it measures inflationary pressures at the producer level of the economy. It is expected to show a 0.8% increase in the overall reading and a 0.1% rise in the core data reading. The core reading is the more important of the two because it excludes more volatile food and energy prices. The bond market should react quite favorably if we get weaker than expected readings, but a larger than expected jump in the core reading could send mortgage rates higher tomorrow.
June's Retail Sales report will also be posted early tomorrow morning. The Commerce Department is expected to say that sales at retail establishments rose 0.5% last month. This data is considered to be of high importance because it measures consumer spending. Consumer spending makes up two-thirds of the U.S. economy, so any related data is watched closely. A smaller than expected increase in sales could help fuel a bond rally and lead to lower mortgage rates, depending on the results of the PPI report.
Overall, I think we will probably see the most movement in mortgage pricing tomorrow or Wednesday due to the importance of the economic releases those days. The week's corporate earnings also have the potential to heavily influence bond trading and mortgage rates via stock market swings. If the major earnings reports show better than expected results, we can expect to see the major stock indexes rally. This would lead to a shift of funds from bonds to stocks and in the process bonds will fall. The results would be higher mortgage rates. The other possibility is weaker than expected results from the key companies that would lead to stock selling and a bond market rally. One thing is a safe bet though- it will likely be an active week for the markets and mortgage rates. Accordingly, please proceed cautiously if still floating an interest rat e.
©Mortgage Commentary 2009