August 19th, 2008 10:56 AM by Lehel Szucs
Tuesday's bond market has opened in negative territory following much stronger than expected inflation readings. Preventing a much weaker open in bonds is another round of early stock losses with the Dow down 130 points and the Nasdaq down 25 points. The bond market is currently down 6/32, but we will likely see a slight improvement in this morning's mortgage rates as a result of strength late yesterday.
Today's big news was July's Producer Price Index (PPI) that revealed a surprising jump in inflation prices. The 1.2% jump in the overall reading and the 0.7% rise in the core data reading were both much larger than analysts had expected. The overall reading now pushes the increase over the past year to its highest level since 1981. Even the core data reading was the largest monthly jump since November 2006. However, since oil prices have fallen by nearly $30 a barrel, there is a general consensus that these inflation readings may have peaked. Therefore, the bond market has been able to minimize its losses this morning.
The second report of the day was July's Housing Starts data that showed starts of new homes fell to their lowest level in 17 years. This was a larger drop than analysts had expected and indicates that the housing sector may still be weakening. That would be good news for the bonds and mortgage rates.
There is no relevant economic news scheduled for release tomorrow. The Conference Board will give us the last piece of data for the week late Thursday morning when it releases its Leading Economic Indicators (LEI) for July. This index attempts to measure economic activity over the next three to six months. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening. However, a weaker than expected reading means that the economy may slow in the near future, making stocks less appealing to investors. This also eases inflation con cerns in the bond market and could lead to slightly lower mortgage rates tomorrow if the stock markets remain calm. Current forecasts are calling for a decline of 0.3% in the index.
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.
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