January 15th, 2010 9:11 AM by Mel Samick
The bond market has improved from early gains following a fairly strong 30-year Bond auction. The stock markets have not moved too much from this morning's levels with the Dow currently up 30 points and the Nasdaq up 8 points. The bond market has improved from this morning, currently up 19/32. This will likely improve this afternoon's mortgage rates slightly, even after this morning's improvement. But, many lenders may opt to wait until tomorrow's pricing to reflect this improvement.The Commerce Department reported this morning that retail level sales fell 0.3% last month, falling well short of expectations. Analysts were expecting to see a 0.5% increase in sales, meaning consumers spent less last month than many had thought. This is good news for bonds and mortgage rates because drops in consumer spending eases inflation and economic recovery concerns. That creates a favorable environment for the bond market and mortgage rates. However, minimizing this news was a sizable upward revision to November's sales, indicating that consumers spent more in November than was previously thought.There are three economic reports scheduled for release tomorrow morning. The first is December's Consumer Price Index (CPI). This is also one of the most important monthly reports that we see since it measures inflationary pressures at the consumer level of the economy. The overall index is expected to rise 0.2% while the core data is expected to increase 0.1%. Weaker than expected readings should lead to bond improvements and lower mortgage rates tomorrow morning. December's Industrial Production report is the second report. It will be released at 9:15 AM ET and measures output at U.S. factories, mines and utilities. This gives us a good indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.6% from November's level. A smaller than expected increase would be considered good news for bonds and should lead to lower mortgage rates as long as the CPI doesn't reveal any negative surprises. The final report of the week is January's preliminary reading to the University of Michigan's Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates. Good news would be if it shows a reading weaker than the 73.8 that is expected. However, it is not one of the week's more important releases and probably will have little impact on tomorrow's mortgage rates due to the importance of the CPI and production reports.