Mel's Blog

July 09 Market News #8

July 16th, 2009 2:26 PM by Mel Samick

Wednesday's bond market has opened in negative territory again after this morning's economic data gave us stronger than expected results and yesterday's after-hours earnings release from tech giant Intel has helped boost stock prices during early trading. The Dow is currently up 257 points while the Nasdaq has gained 63 points. The bond market is currently down 62 basis points, which will likely push this morning's mortgage rates higher.

The Labor Department gave us the first piece of data with their release of June's Consumer Price Index (CPI). It revealed a 0.7% increase in the overall index and a 0.2% rise in the core data that excludes more volatile food and energy prices. Both of these readings were 0.1% above forecasts, meaning that prices rose slightly more than expected at the consumer level of the economy. This is considered negative news for the bond market because rising prices means inflation is strengthening. Inflation erodes the value of a bond's future fixed interest payments, making them less attractive to investors. Generally speaking, as bond prices fall, mortgage rates rise.

Today's second report showed that output at U.S. factories, mines and utilities fell 0.4% last month. While the decline can be considered good news for bonds and mortgage rates, it was however, a smaller drop than the 0.6% that analysts had predicted. This indicates that Industrial Production was stronger than thought, meaning the results are a negative towards bonds.

Later this afternoon, we will get the release of the minutes from the last FOMC meeting. There is a possibility of the markets reacting to them following their 2:00 PM ET release, especially if they show some divisiveness by its members during discussion and voting at the last meeting or give any indication of the Fed's possible next move with monetary policy. I suspect that we will see comments that are not exactly favorable to bonds and mortgage rates, therefore, I would not be surprised to see afternoon volatility in trading and possibly even an upward revision to mortgage rates.

There is no relevant monthly or quarterly economic data scheduled for release tomorrow. The Labor department will give us weekly unemployment claim figures, but this data usually does not have much of an influence on bond trading or mortgage rates unless it varies greatly from forecasts. They are expected to show that 552,000 new claims for benefits were filed last week, down from the previous week's total. The larger the number, the better the news for mortgage rates.


Posted in:General
Posted by Mel Samick on July 16th, 2009 2:26 PM



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