MARKET NEWS 10-17-12

Wednesday's bond market has opened well in negative territory following stronger than expected housing news. The stock markets are mixed but calm with the Dow down 10 points and the Nasdaq up 3 points. The bond market is currently down 17/32, which will likely push this morning's mortgage rates higher by approximately .125 - .250 of a discount point.

September's Housing Starts was today's only relevant economic news. The Commerce Department announced early this morning that construction starts of new housing rose a whopping 15% last month, reaching its best level since Sept 2008. That was much stronger than many had thought and indicates housing sector strength, making the news negative for the bond market and mortgage pricing.

The stock markets are having a subdued reaction to the news, even though the data isn't known to be a market mover. Still, the results paint a much better picture in new home construction than analysts had expected. I will be watching the major stock indexes for a delayed reaction later this afternoon. If stocks start to move higher, we very well could see an upward revision to mortgage rates sometime this afternoon.

Tomorrow has two pieces of economic data scheduled for release, but neither is considered to be of high importance to the markets or mortgage rates. The first is the weekly unemployment update from the Labor Department. They are expected to announce that new claims for unemployment benefits rose to 360,000 last week from the surprisingly low 339,000 of the previous week. It is worth noting though that the 339,000 of two weeks ago was supposedly short of an entire state's final figures. What this means is that the large increase that is expected isn't really a sign of the employment sector quickly weakening, just as the previous week's 339,000 wasn't taken as a sign of solid growth in the sector. A much larger number than the 360,000 would be good news for the bond market and mortgage pricing while a figure that is noticeably lower would be unfavorable for mortgage shoppers. Due to the abnormality in last week's announcement in addition to the fact that it tracks only a single week's worth of initial claims, it will take a significant variance from forecasts for this data to draw much attention.

Tomorrow's second report is September's Leading Economic Indicators (LEI) at 10:00 AM ET. This index attempts to measure future economic activity, particularly during the next three to six months. Current forecasts are calling for an increase of 0.2% from August's reading. This would indicate that economic activity is likely to increase slightly over the next couple of months. That would be relatively bad news for the bond market and mortgage rates, but this report is considered to be only moderately important. Therefore, a small increase would not be of much concern to the bond and mortgage markets. Ideally, we would like to see a decline in the index.