Mel's Blog

October 09 Market News #5

October 21st, 2009 9:21 AM by Mel Samick

Tuesday's bond market has opened in positive territory following weaker than expected economic reports and early stock losses. The stock markets are negative ground with the Dow down 52 points and the Nasdaq down 14 points. The bond market is currently up, which will likely improve this morning's mortgage rates.

The Labor Department reported this morning that September's Producer Price Index (PPI) fell 0.6% while the core data fell 0.1%. Both of these readings were weaker than expected, indicating that inflationary pressures at the producer level of the economy remained subdued last month. This is very good news for bonds because inflation erodes the value of a bond's future fixed interest payments. Therefore, a low inflation environment makes bonds more attractive to investors and leads to lower mortgage rates.

September's Housing Starts was also released this morning. It also showed weaker than expected results, meaning that the number of construction starts of homes fell short of expectations. This is good news for bonds because a weak housing sector makes a broader economic recovery less likely. However, this data was not nearly important to the markets as the PPI readings were.

The only data scheduled for release tomorrow comes during afternoon trading when the Federal Reserve will release its Beige Book at 2:00 PM ET. This data details economic conditions throughout the U.S. by region. It is relied upon heavily by the Federal Reserve during their FOMC meetings when determining monetary policy. If it reveals stronger signs of inflation or economic growth from the last release, we could see mortgage rates revise higher shortly after its release.

                Mel

Posted in:General
Posted by Mel Samick on October 21st, 2009 9:21 AM

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