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Wednesday, July 17, 2019

Market Commentary

Updated on July 17, 2019 10:31:32 AM EDT

This morning’s only relevant economic data was Junes Housing Starts at 8:30 AM ET. It showed that new home groundbreakings fell last month when analysts were expecting to see little change. Furthermore, a secondary reading that tracks new building permits issued, which indicates future groundbreakings, also came in softer than expected. The weaker readings point towards a softening new home portion of the housing sector. Because a weaker housing sector makes broader economic growth much more difficult, we can consider this favorable news for bonds and mortgage rates.

The Federal Reserve will release its Beige Book report at 2:00 PM ET this afternoon. 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 pricing.

Tomorrow has just one monthly release in addition to the weekly unemployment update. Junes Leading Economic Indicators (LEI) will be released at 10:00 AM ET. 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 no change, meaning it is predicting flat economic growth over the next few months. A decline in the index would be good news for the bond and mortgage markets.

Corporate earnings season is starting to kick into high gear. Alcoa is expected to post their earnings 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 for the bond market, 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. However, there are plenty of other earnings releases that will also 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 tend to track bond yields.

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