Thursday’s bond market has opened in negative territory following much stronger than expected economic news. Stocks are reacting negatively to the strong data also as it raises concerns the Fed may now act sooner than later to limit economic growth and inflation. The Dow is currently down 136 points while the Nasdaq has lost 93 points. The bond market is currently down 10/32 (1.33%), which should push this morning’s mortgage rates higher by approximately .250 of a discount point.
Today’s key economic release was August’s Retail Sales report at 8:30 AM ET that showed consumers spent significantly more last month than many had thought. The headline number was a 0.7% increase in sales when forecasts were calling for a decline of the same size. Even worse was the secondary reading that excludes more volatile and costly auto sales. It came in with a 1.8% jump when it was expected to slip 0.1%. These readings are clearly bad news for bonds and mortgage rates because consumer spending makes up over two-thirds of the U.S. economy, meaning the increases show stronger economic activity. It is worth noting that July’s sales figures were revised weaker by a noticeable amount, but eyes are on the more recent data.
Also posted early this morning was last week’s unemployment update. It revealed 332,000 new claims for unemployment benefits were filed, up from the previous week’s revised 312,000. The increase in new claims is good news for bonds and mortgage rates since rising claims is a sign of weakness in the employment sector. However, the Retail Sales report carries much more importance than this weekly update does. Accordingly, this data has had no impact on today’s bond trading or mortgage pricing.
Tomorrow brings us a single report to close out this week’s calendar. The University of Michigan's Index of Consumer Sentiment for September will give us an indication of consumer confidence in their own financial situations. This type of index projects consumer willingness to spend. If a consumer's confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. On the other hand, if they are growing more concerned about their job security or finances, they probably will delay making that sizable purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 72.0 that would mean confidence strengthened from August's level of 70.3. The lower the reading, the better the news it is for mortgage rates.