October 15th, 2009 1:45 PM by Mel Samick
Thursday's bond market initially opened well in negative territory but has since rebounded after stocks opened in negative ground. The Dow is currently down 28 points while the Nasdaq has fallen 12 points. While those may be minor losses, the concern is the fact that the Dow has slipped below the 10,000 benchmark that we heard so much about yesterday. Investors' concerns that stocks may not be able to hold recent gains has helped boost bond prices during early morning trading. The result is the bond market currently up 3/32, but I am expecting to see an increase in this morning's mortgage rates.The Labor Department reported this morning that September's Consumer Price Index (CPI) rose 0.2% and that the core data reading rose 0.2%. The overall reading matched forecasts but the more important core data exceeded expectations. This means that prices rose more than expected at the consumer level of the economy when excluding volatile food and energy prices. While the difference was minor, it still can be considered bad news for bonds and mortgage rates because rising prices raises inflation concerns in the bond market.They also gave us last week's unemployment figures, saying that 514,000 new claims for unemployment benefits were filed last week. This was a lower total than many had thought, but since this data is not considered highly important, its impact on this morning's trading and mortgage pricing has been minimal.Yesterday's release of minutes of the most recent FOMC meeting revealed that most Fed members feel that the recession is indeed already over. However, many feel that the weak labor market and modest economic growth expectations still leave a threat to the recovery. The best way to describe the overall thought process is that they feel the recession is over and the economy is starting to grow, but we are no t out of the woods yet. There are still variables that could threaten the economic recovery. Generally speaking, the minutes did give us more detailed insight into the Fed's thoughts and led to speculation that more economic stimulus options may be explored in the future. This is fairly neutral for the bond market as the end of the recession can be considered bad news but the cautious approach still makes bond appealing to investors.There are two reports scheduled for release tomorrow morning. September's Industrial Production data is the first release of the day and will be posted mid-morning. It gives us an indication of manufacturing strength by tracking orders at U.S. factories, mines and utilities. It is expected to show a 0.1% increase in output from August's level, meaning that manufacturing activity rose slightly. The last report of the week is October's preliminary reading to the University of Michigan's Index of Consumer Sentiment late morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows a sizable decline in consumer confidence, bond prices will probably rise. It is expected to show a reading of 74.0, up slightly from September's final of 73.5.