The stock markets have given back all of this morning's gains, falling well into negative territory and allowing bonds to improve during afternoon trading. The Dow is currently down 70 points while the Nasdaq is now down 8 points. The bond market is currently down 8/32, which should lead to afternoon improvements in mortgage rates.

The afternoon swing is due more as a result of concerns about stocks and the potential for further losses in the major indexes than it was about today's economic news. There is some strong speculation by some analysts that the stock markets are likely to be moving lower in the near future. This could make bonds more attractive to investors in the coming weeks and lead to improvements in mortgage rates. However, this is purely speculation at this point.

This morning's economic data basically gave us stronger than expected results that created a negative tone on the bond market during early trading. Those reports also led to this morning's stock gains. But, those gains were short-lived as the stocks are falling into the close of trading and will likely end the week with losses.

The Labor Department said early this morning that the Consumer Price Index (CPI) was unchanged last month, but the core data reading that excluded more volatile food and energy prices 0.3%. It was expected to rise only 0.1%, indicating that prices at the consumer level of the economy are rising quicker than thought. This is bad news for bonds because it raises inflation concerns and makes long-term securities less attractive to investors.

April's Industrial Production and the University of Michigan's Index of Consumer Sentiment also gave us stronger than expected results. The production report revealed a 0.5% decline in output compared to a 0.6% forecast. The sentiment index came in at 67.9, exceeding forecasts by more than a percentage point. Both of these reports were also unfavorable to bonds, but the CPI was the most important of the three and had the biggest influence on this morning's mortgage rates.

Next week is pretty light in terms of scheduled economic releases. There are no major economic reports scheduled for release except for the minutes from the last FOMC meeting.

Mel