Today's Commentary

Updated on October 16, 2019 10:12:09 AM EDT
Wednesday’s bond market has opened in positive territory following weaker than expected economic data. The major stock indexes are showing early losses of 64 points in the Dow and 43 points in the Nasdaq. The bond market is currently up 5/32 (1.75%), but weakness late yesterday is going to cause this morning’s mortgage rates to appear approximately .125 of a discount point higher than Tuesday’s early pricing.

September's Retail Sales report was posted at 8:30 AM ET, revealing a 0.3% decline that came as a surprise to many in the markets. Analysts were expecting to see a 0.3% increase in sales. Even a secondary reading that excludes more costly and volatile auto transactions showed a decline when forecasts were calling for a rise. This means consumers spent noticeably less last month than thought. An upward revision to August’s sales may be preventing a stronger a reaction to the news. However, a decline in consumer spending is great news for bonds and mortgage rates because it is a sign of economic weakness. Since consumer spending makes up almost 70% of the U.S. economy, the weaker reading is a sign of softer economic growth that makes bonds more attractive to investors.

The Fed Beige Book will be released this afternoon. It summarizes economic activity throughout the country by Federal Reserve region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during mid-afternoon trading. It probably will not cause a major sell off in the stock or bond markets, but the 2:00 PM ET release is still worth watching.

Tomorrow has two pieces of economic data that are somewhat relevant to mortgage rates. The first is September's Housing Starts at 8:30 AM ET. This Commerce Department report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and future mortgage credit demand by tracking construction starts of new homes but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a drop in new home starts between August and September. I believe we need to see a significant surprise in this data for it to have an impact on mortgage rates.

It will be followed by September's Industrial Production data at 9:15 AM ET tomorrow. This release will give us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.2% decline in output from August's level, meaning that manufacturing activity slipped last month. An increase in production would be negative for bonds and mortgage rates as it would indicate economic strength. A decline in output would be favorable for mortgage shoppers.


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