Updated on July 18, 2018 10:29:50 AM EDT
June’s Housing Starts was posted at 8:30 AM ET this morning, revealing a 12.3% decline in new home groundbreakings. This was a much larger decline than analysts were expecting and dropped starts to their lowest level since last September. This is good news for the bond market and mortgage rates because it indicates weakness in the new home portion of the housing sector. However, new homes make up only a small part of the overall housing sector, preventing this data from carrying much importance. The variance from forecasts in today’s release should have been enough to cause a reaction in rates, but we just aren’t seeing it yet.
We have day two of Fed Chairman Powell’s congressional testimony taking place, speaking before the House Financial Services Committee. However, the second day of this proceeding rarely brings any surprises, so we shouldn’t expect a market reaction that will affect mortgage rates.
Later today, the Federal Reserve will release its Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see afternoon moves in the markets and mortgage rates. Signs of weakness should translate into bond strength and better mortgage rates.
Tomorrow morning has two pieces of data being posted, starting with weekly unemployment claims at 8:30 AM. The final economic report of the week will be Junes Leading Economic Indicators (LEI) at 10:00 AM ET tomorrow morning. This Conference Board index attempts to measure economic activity over the next three to six months. While it is not a factual report, it still is considered to be of moderate importance to the bond market. It is expected to show a 0.4% increase, meaning it is predicting gains in economic growth over the next few months. A decline in the index would be good news for the bond and mortgage markets.
We will also be watching corporate earnings as their postings get more plentiful and mortgage important. Alcoa is expected to post their results after the market closes today. Therefore, it will have an impact on overnight and early morning trading tomorrow. This company isnt necessarily key to gauging economic strength, but it is the first Dow component that posts earnings each quarter. Since it is the first look into Dow-related earnings, it draws plenty of attention in the markets. There are also plenty of other earnings releases that will be in the spotlight. Generally speaking, weaker corporate earnings translates into stock selling that makes bonds more attractive to investors. As bond buying pushes prices higher, yields fall and mortgage rates usually track bond yields.
©Mortgage Commentary 2018