Updated on February 19, 2020 11:23:51 AM EST
Januarys Producer Price Index (PPI) started today’s batch of events at 8:30 AM ET. It revealed a 0.5% rise in the overall reading and the same in the more important core data. Both increases exceeded forecasts, meaning inflationary pressures at the producer level of the economy were stronger than thought. Because rising inflation makes long-term securities less appealing to investors, this was bad news for mortgage rates.
The second release of the day was Januarys Housing Starts that showed a 3.6% decline in new home groundbreakings. While a decline in housing starts is favorable news for mortgage rates, the size of the decrease was much smaller than analysts were expecting to see. That causes us to consider the data slightly bad news for rates.
We also have release of the minutes from the most recent FOMC meeting later today. Traders will be looking for any indication of the Feds next move regarding monetary policy, which is currently expected to keep key short-term interest rates unchanged for the foreseeable future. Comments and discussion amongst Fed members could be helpful to shape trader opinions on when the Fed may act next. The Fed’s next move may not be adjusting short-term rates. It could be making changes to their balance sheet and the amount of bonds they buy each month or let roll off when the security matures. The minutes will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility, or they may be a non-factor. However, they do carry the potential to influence mortgage rates, so they should be watched.
Tomorrow’s sole monthly release will be Januarys Leading Economic Indicators (LEI) at 10:00 AM ET. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.3% increase, meaning that economic activity should expand moderately in the near future. A smaller increase would be good news for the bond market and mortgage rates. This data is not considered to be highly important, so a sizable variance from forecasts is needed for it to directly affect mortgage rates.
©Mortgage Commentary 2020