Today's Commentary

Updated on July 14, 2020 10:05:14 AM EDT
Tuesday’s bond market has opened in positive territory despite stronger than expected inflation news. Stocks are mixed with the Dow up 78 points and the Nasdaq down 118 points. The bond market is currently up 4/32 (0.60%), but a rebound in mortgage bonds yesterday coupled with this morning’s gains should improve today’s mortgage rates by approximately .250 of a discount point if comparing to Monday’s early pricing.

This morning’s sole relevant economic release was June's Consumer Price Index (CPI) at 8:30 AM ET. It revealed a 0.6% rise in the overall reading and a 0.2% increase in the more important core data that excludes food and energy costs. Both readings were a bit higher than expected, meaning inflationary pressures at the consumer level of the economy were stronger than thought. Since inflation erodes the value of a bond’s future fixed interest payments and makes them less attractive to investors, we should consider the data slightly unfavorable for mortgage rates. However, it appears the news had little impact on this morning’s mortgage rates.

Tomorrow has two reports that we will be watching. The first is June's Industrial Production data at 9:15 AM ET that will give us an indication of manufacturing sector strength. This data tracks output at U.S. factories, mines and utilities. It is expected to show a 4.5% rise in production, indicating that the manufacturing sector strengthened significantly last month. That would basically be bad news for bonds and mortgage rates, but this report is considered to be only moderately important. Therefore, any reaction will be minimal unless there is a wide variance from forecasts.

The second release of the day will be the Federal Reserve’s Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see an afternoon move in the markets and mortgage rates. Signs of lackluster growth would be favorable news for rates.


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