Updated on February 18, 2020 10:09:08 AM EST
There is no relevant economic data scheduled for release today. The rest of the week brings us the release of only four pieces of relevant economic data for the bond market to digest along with the minutes from the most recent FOMC meeting.
Tomorrow has three events set that may influence mortgage pricing, beginning with Januarys Producer Price Index (PPI) at 8:30 AM ET. This index is the sister report to last weeks Consumer Price Index but measures inflationary pressures at the producer level of the economy. The core data reading is more important to market participants than the overall reading because it excludes more volatile food and energy prices. They are expected to show an increase of 0.1% in the overall reading and a 0.1% 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 future inflation that make long-term securities less attractive to investors.
Also early tomorrow morning is Januarys Housing Starts that gives us an indication of housing sector strength and mortgage credit demand by tracking new housing groundbreakings. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for a large decline in construction starts of new housing. A weak housing sector makes broader economic growth less likely in the near future, which makes bonds more attractive to investors. Therefore, the smaller the number of starts, the better the news it is for mortgage rates.
The release of the minutes from the most recent FOMC meeting will close out the day’s activities. Traders will be looking for any indication of the Feds next move regarding monetary policy, which is currently expected to keep key short-term interest rates unchanged for the foreseeable future. Comments and discussion amongst Fed members could be helpful to shape trader opinions on when the Fed may act next. The Fed’s next move may not be adjusting short-term rates. It could be making changes to their balance sheet and the amount of bonds they buy each month or let roll off when the security matures. The minutes will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading tomorrow. These minutes may lead to afternoon volatility, or they may be a non-factor. However, they do carry the potential to influence mortgage rates, so they should be watched.
Overall, tomorrow is the best candidate for most important day of the week for mortgage rates. The calmest day may be Thursday. Corporate earnings season is winding down, removing one heavy influence on stocks that can cause bonds to react. The coronavirus headlines are getting somewhat repetitive from the market’s perspective, at least until its impact on the global economy becomes clearer. These factors should keep bonds a bit calmer for the immediate future than we have seen recently. That doesn’t mean that we won’t see movement in rates this week, just that the chance of seeing a volatile week is minimal unless something unexpected happens.
©Mortgage Commentary 2020