Wednesday, February 16, 2011

Market Commentary 02.15.11

Updated on 2011-02-15 11:14:45 EST Tuesday's bond market has opened in positive territory following weaker than expected sales date. The stock markets have reacted negatively to the news with the Dow down 58 points and the Nasdaq down 14 points. The bond market is currently up 4/32, which with yesterday's late strength should improve this morning's mortgage rates by approximately .125 - .250 of a discount point.
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The Commerce Department announced January's Retail Sales figures early this morning. They reported that retail level sales rose 0.3% when analysts were expecting a 0.6% increase. That means that consumers spent less last month than many had thought, making this data good news for the bond market and mortgage rates. Since consumer spending makes up two-thirds of the U.S. economy, consumer spending data is very important to the markets.

Tomorrow morning has three economic reports scheduled that may influence mortgage rates. January's Housing Starts is the first and will be posted at 8:30 AM ET, giving us an indication of housing sector strength and mortgage credit demand. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for an increase in starts of new housing.
January's Producer Price Index will also be released early tomorrow morning. The Labor Department will release this important reading of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.7% in the overall reading and a 0.2% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about inflation that make long-term securities less attractive to investors.

January's Industrial Production report is the third release of the morning. It will be released at 9:15 Am ET tomorrow morning. This data gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.6% increase in production from December to January. A smaller than expected rise in output would be good news and should push bond prices higher, lowering mortgage rates tomorrow. That is assuming that the PPI doesn't give us any negative surprises.

The minutes from last FOMC meeting will be released tomorrow afternoon. Traders will be looking for any indication of the Fed's next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may indicate if there is a consensus amongst Fed members or if there is disagreement about their actions or inactions. This release may lead to afternoon volatility, or it may be a non-factor. However, the minutes do carry the potential to influence mortgage rates so they should be watched.

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