July 12th, 2024 10:54 AM by T. Fanning
Happy Friday!
The Consumer Price Index (CPI) has become the most crucial economic report for the bond market. The key figure in this report is the month-over-month core CPI, which excludes food and energy. While the forecast predicted a 0.2% rise, the actual number came in at 0.1%, rounded up from 0.065%. This news led to a positive response in mortgage interest rates, dropping .125%-.25% on average.
Monday brings no major economic reports, but Fed Chairman Powell's lunchtime speech at the Economic Club of Washington DC could impact markets. This week's agenda includes several economic releases, a midweek Treasury auction, and more Fed-member speeches. A key consumer spending report on Tuesday may influence mortgage rates.
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Last Updated: 7/12/24
Friday's bond market has opened in positive territory following mixed economic news. Stocks are showing solid gains of 168 points in the Dow and 133 points in the Nasdaq. The bond market is currently up 5/32 (4.19%), which should erase yesterday's afternoon weakness and keep mortgage rates at Thursday morning's levels. If you saw an intraday increase late yesterday, you should see an improvement this morning of about the same size.
Yesterday's 30-year Treasury Bond auction was somewhat of a disappointment. Investor demand for the securities was softer than expected and weaker than Wednesday's 10-year Note sale. It was thought that after yesterday's favorable CPI data investors would be active buyers. Bond prices moved lower after results were posted at 1:00 PM ET, causing a few lenders to issue an intraday increase in mortgage pricing.
June's Producer Price Index (PPI) was the first of today's two relevant economic reports. It showed that inflation at the wholesale level of the economy was stronger than thought. This applies not only to June, but upward revisions to May's data means the past two months. June's overall readings rose 0.2% while core data jumped 0.4%. They were expected to come in up 0.1% and 0.2% respectively.
Annual numbers didn't help the cause either. The overall year-over-year reading moved from May's revised 2.4% to 2.6% last month. Even more of a surprise was the annual core reading that spiked from 2.3% in May to 3.0% in June. The sizable moves in the annual numbers are fueled by upward revisions to May and stronger readings for June. Fortunately, yesterday's consumer inflation data is more important to the markets and it gave us very favorable news. In other words, yesterday's data is likely preventing a negative response in bonds this morning.
This morning's favorable news came from the University of Michigan's Index of Consumer Sentiment for July. They announced the initial July reading stood at 66.0, down from June's final of 68.2. Forecasts had a small increase in the index. The decline means fewer surveyed consumers felt better about their own financial situations than did last month. That is good news for bonds and mortgage rates because waning confidence usually translates into softer consumer spending numbers, limiting economic growth.
Monday has no scheduled economic reports that we need to be concerned about, but Fed Chairman Powell has a lunchtime speaking engagement that could cause some movement in the markets. He will be participating in a discussion at the Economic Club of Washington DC. After hearing his two days of congressional testimony this week, it is hard to expect something new to come from this appearance. Still, anytime he talks, the markets pay attention and we have to be prepared for a potential reaction.
The rest of the week brings us a few economic releases, a Treasury auction midweek and a several more Fed-member speeches. One of those reports will give us very important information on consumer spending habits, meaning it can heavily influence Tuesday's mortgage rates. At best, the remaining reports can be labeled as moderately important. Look for details on all of next week's activities in Sunday evening's weekly preview.
If I were considering financing/refinancing a home, I would....
Lock if my closing were taking place within 7 days... Float if my closing were taking place between 8 and 20 days... Float if my closing were taking place between 21 and 60 days... Float if my closing were taking place over 60 days from now...
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