Daily Rate Lock Advisory

Indexes Affecting Rate Lock

Medium

Negative

Fed Beige Book

Yesterday afternoon’s release of the Federal Reserve's Beige Book report showed business contacts throughout the Fed’s bank regions reported slightly slower economic growth but rising prices/inflation. Nine of the Fed’s twelve regions saw stronger economic activity from the previous update, leaving three with no change. The previous update had 10 of the 12 announcing different stages of growth. All districts reported price gains with the majority experiencing moderately rising costs, three reporting strong increases and the remaining district posting a modest rise. In short, the report indicates rising prices are slowing economic activity and business contacts are concerned about future growth in the current environment. None of this came as a big surprise, but it is another point for the Fed to consider when they meet later this month.

High

Positive

General Bond Trends

The Fed Beige Book report certainly was not the reason for yesterday’s late bond rally. Bonds started to recover some of their post-CPI inflation losses shortly after many lenders issued rate sheets yesterday, then built on that momentum throughout the day as tech stock selling spiraled. Unsurprisingly, we saw a short-lived pause in the buying spree right around the time the Beige Book was posted at 2:00 PM ET Wednesday because of the inflation-related notes in it, but the upward trend in bond prices started again before closing, leading to lower yields and broad intraday improvements to mortgage pricing before the end of the day.

High

Negative

Retail Sales

The first of this morning’s three early morning economic releases was September’s Retail Sales report that revealed consumers spent much more than expected last month, not letting rising prices slow their spending. Sales at retail-level establishments rose 0.8% when analysts were expecting to see a 0.3% rise. Even a secondary reading that excludes more costly and volatile auto sales were up 0.9%, exceeding predictions of a 0.5% increase by a decent margin size. This data has to be labeled bad news for bonds and mortgage rates because consumer spending makes up over two-thirds of the U.S. economy. Consumers spending more fuels economic growth and contributes to higher prices that makes bonds less appealing to investors.

High

Negative

Producer Price Index (PPI)

Today’s second major release was the follow-up wholesale version of yesterday’s Consumer Price Index. September’s Producer Price Index (PPI) showed a 1.3% rise in the overall reading while the more important core data that excludes volatile food and energy costs was up 0.7%. Forecasts had the overall reading up 0.5% and core data rising only 0.3%. The year-over-year numbers were equally concerning with the overall PPI moving from August’s 5.4% annual pace to 6.3% last month and the core data rising from 4.6% to 5.0%. These wholesale inflation numbers were worse than yesterday’s consumer readings, fueling the possibility of the Fed making another rate hike at this month’s FOMC meeting. Keep in mind that wholesale inflation often trickles down to consumers in the near future, so it will be interesting to see what the upcoming CPI readings will show. Fortunately for mortgage shoppers, outside factors are heavily weighing on trading this morning, allowing for traders to ignore the economic news, at least for the moment.

Low

Neutral

Weekly Unemployment Claims (every Thursday)

Last week’s unemployment update was this morning’s third piece of data, but it was irrelevant to bond trading and mortgage pricing. It revealed 199,000 new claims for jobless benefits were made last week, up slightly from the previous week’s revised 198,000 initial filings. This was very close to forecasts of 200,000, allowing us to consider the report neutral for rates. We were expecting this report to have little impact on today’s rates anyhow due to the influence the other two releases usually carry.

High

Positive

General Bond Trends

The huge bond rally over the past 20 hours is very much welcomed, albeit quite surprising also. Key economic data showing consumers spending considerably more than expected, coupled with much stronger than predicted inflationary pressures in the economy should have pushed bond yields and mortgage rates higher than they were earlier in the week. There are a couple of theories as to why this hasn’t happened (yet). One being that investor concerns in the stock markets, particularly about tech and AI stocks, is creating a flight-to-safety move where funds move from stocks into bonds to escape current and potential weakness. Another is that the higher inflation readings will force the Fed to be more proactive with their monetary policy decisions (raising short-term rates) to help bring inflation down. The truth is that the Fed’s long-term goals for inflation actually align with what the bond market needs for yields and mortgage rates to move lower. Whatever the reason is, the recent rally should be enjoyed cautiously because quick knee-jerk reactions like we have seen over the past two days can easily be erased if unfavorable data and news continue in the coming days.

Medium

Unknown

Industrial Production

Closing this week’s economic calendar will be September's Industrial Production report at 9:15 AM ET tomorrow. This release will give us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. Analysts are predicting a 0.4% rise from August's level, meaning that manufacturing activity strengthened last month. A larger increase in production would be negative for bonds and mortgage rates, but the importance level of this report is far less than that of the data we received yesterday and this morning. We aren’t expecting to see a strong reaction to the release regardless of what it shows.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

Fed Beige Book

General Bond Trends

Retail Sales

Producer Price Index (PPI)

Weekly Unemployment Claims (every Thursday)

General Bond Trends

Industrial Production

Float / Lock Recommendation