Tuesday, June 14, 2016 - Article by: James Brooks -
By James Brooks
The bond market is currently up 1/32 (1.61%), which should keep today's mortgage rates unchanged.
Today's only economic news came from the Commerce Department, who posted May's Retail Sales data at 8:30 AM ET. It showed a 0.5% increase in retail-level sales, exceeding forecasts of a 0.3% rise. This means consumers spent more than analysts were expecting, making the data negative for bonds and mortgage rates. Helping to offset any reaction was a secondary reading that excludes more costly and volatile auto sales. It matched forecasts of a 0.4% increase from April's numbers. Still, the data is slightly negative for mortgage rates but we have not seen it have too much of an impact on today's pricing.
Tomorrow is going to be an interesting day. It begins with two morning economic releases before a Fed-filled afternoon. The first report is May's Producer Price Index (PPI) at 8:30 AM ET. This index helps us measure inflationary pressures at the producer level of the economy. There are two readings that are watched, the overall and the core data. The core data is considered to be the more important one because it excludes more volatile food and energy prices.
A large increase could raise concerns about inflation rising, making a Fed rate increase more likely sooner than later. 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 investors to sell bonds, driving bond prices lower, pushing their yields upward and bringing mortgage rates higher. Analysts are expecting to see increases of 0.3% in the overall reading and 0.1% in the core data. Good news for mortgage shoppers would be declines in these.
May's Industrial Production data will be released at 9:15 AM ET tomorrow, giving us an indication of manufacturing sector strength. It tracks output at U.S. factories, mines and utilities, but is considered to be only moderately important to mortgage rates. If it reveals that production is rapidly rising, concerns of manufacturing strength may come into play in the bond market and cause selling in bonds. Analysts are expecting to see a 0.1% decline, meaning industrial output was softer last month than in April. A larger decline would be favorable to bonds and mortgage pricing.
This week's three Fed events will all take place tomorrow afternoon. The first is the 2:00 PM adjournment of the FOMC meeting that began today. This is when Fed Chair Yellen and company will decide whether or not to change key short-term interest rates. The general consensus is that they will not act yet, waiting to see if Britain decides to leave the Euro and what this month's Employment report shows.
The recent weak employment numbers led to many market participants changing their timeline of the Fed's rate hikes, pushing their predictions for the next increase to the following meeting in July at the earliest. However, even if no change is made at this meeting, all eyes will be watching the post-meeting statement for any hints at when they will make a move. If there are any surprises, look for an immediate reaction in the financial and mortgage markets.
Also at 2:00 PM ET tomorrow, the Fed will release their updated estimates for future economic activity. They will post their predictions on GDP growth, unemployment and inflation. These could be a market mover if they show even minor revisions to any of the key headline economic numbers. The larger the change, the more likely the markets will react. Revisions that point toward slower economic growth would be good news for the bond market and mortgage rates as it would mean the Fed will probably make that rate increase later than sooner.
They will be followed by a press conference hosted by Chairperson Yellen at 2:30 PM ET. These press conferences with the media often lead to significant afternoon volatility in the markets and mortgage rates. Any surprises will probably cause a noticeable reaction in the markets. That means there is a high probability of seeing afternoon changes to mortgage rates tomorrow.
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... Float if my closing was taking place over 60 days from now.
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