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Market Commentary

Updated on 2010-12-15 12:36:33 EST

Wednesday’s bond market has opened in positive territory following the release of somewhat favorable economic data. The stock markets are showing gains with the Dow up 33 points and Nasdaq up 7 points. The bond market is currently up 7/32, but we will still see an increase in this morning’s mortgage rates of approximately .375 of a discount point due to late weakness yesterday.

The Labor Department said early this morning that November’s Consumer Price Index (CPI) rose 0.1%, as did the core data reading. The more important core reading that excludes more volatile food and energy prices matched forecasts. The overall reading was slightly lower than expectations, hence the somewhat favorable label on the results. This means that inflationary pressures at the consumer level of the economy remained calm. The fact that the readings did not rise more than expected could be taken as good news, but the recent negative tone in the bond market didn’t allow a rally based on that fact alone.

November’s Industrial Production data was released mid morning, revealing a 0.4% increase in output at U.S. factories, mines and utilities. This was slightly higher than forecasts, but a downward revision to October’s results helped offset any impact on today’s trading.

Tomorrow’s only monthly data is November's Housing Starts, but it is the week’s least important data. I don’t see it causing much movement in mortgage rates unless it shows a huge variance from expectations. It is expected to show a sizable increase in starts of new homes, indicating housing sector strength. Generally speaking, this would be bad news for bonds and mortgage pricing, but unless there is a significant surprise it will likely have little impact on tomorrow’s mortgage rates.

The Labor Department will also post weekly unemployment figures tomorrow morning. They are expected to say that 425,000 new claims for benefits were filed last week. This would be a small increase from the previous week, but unless there is a sizable change in the number of new filings, I don’t believe this data will affect mortgage rates much.