Santa Fe Las Campanas Market Update

Monday’s bond market has opened flat following a relatively uneventful open in stocks. The major indexes are mixed with the Dow up 12 points and the Nasdaq down 6 points. The bond market is currently unchanged from Friday’s close, which will likely keep this morning’s mortgage rates at Friday’s afternoon levels.
There is no relevant economic data being posted today, leaving the stock markets as the likely culprit behind any changes to mortgage rates later today. If the major stock indexes rally, bonds should suffer and mortgage rates could move higher this afternoon. However, if both indexes move into negative territory, we may see rates improve slightly later today.
Tomorrow morning has two highly important economic reports scheduled for release. May’s Retail Sales report will be posted at 8:30 AM ET, giving us a very important measure of consumer spending. Consumer level spending is extremely important to the bond market because it makes up two-thirds of the U.S. economy. Analysts are expecting to see that retail-level sales fell 0.7% last month. A larger decline in sales would be good news for the bond market and could lead to lower mortgage rates tomorrow.
Also being posted early tomorrow morning is May’s Producer Price Index (PPI). It will help us measure inflationary pressures at the producer level of the economy. There are two readings of this index, the overall and the core data. The core data is considered to be the more important one because it excludes more volatile food and energy prices. A large increase could raise concerns about inflation rising as soon as the economy gains some traction. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond’s future fixed interest payments. Rising inflation causes investors to sell bonds, driving prices lower, pushing their yields upward and mortgage rates higher. Analysts are expecting to see an increase of 0.1% in the overall index and a 0.2% rise in the core data. It will not take much of a variance from forecasts for the markets to react, which would most likely lead to changes in mortgage rates.
Overall, look for tomorrow or Wednesday to be the biggest day of the week. Not just due to the fact they bring the release of four of the week’s seven reports, but also because of the importance of some of those releases. We saw plenty of movement in the markets and mortgage pricing last week and it is quite likely that this week will be similar. The stock markets will also heavily influence bond trading and mortgage rates, so watch the major indexes in addition to the economic reports. The fact that the Dow closed last week below 12,000 will be headline news if it does not bounce back and stay above that level. It is highly recommended that you maintain contact with your mortgage professional this week if still floating an interest rate.