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Market Commentary

Updated on January 17, 2019 10:13:17 AM EST

Yesterday afternoon's release of the Fed Beige Book gave us some favorable news. It showed that the Fed's business contacts in many most regions were less optimistic about business conditions since the last update. They referenced tariff-related costs, political uncertainty, rising rates and market volatility as some of the reasons for the change in outlook. Slowing manufacturing activity was a focal point also. This is good news for bonds and mortgage rates because the Fed relies heavily on this information when deciding what to do with key short-term interest rates during their FOMC meetings. It is another reason for the Fed to take a more cautious approach towards raising rates and should help keep mortgage rates lower.

Last week's unemployment figures were today's only relevant economic data. They showed that 213,000 new claims for unemployment benefits were filed last week, down from the previous week's 216,000 initial filings. Analysts were expecting to see an increase in claims, hinting that the employment sector may have been stronger than thought last week. That makes the data bad news for bonds and mortgage rates.

Tomorrow has two moderately important report set for release. The first will be December's Industrial Production report at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.2% from November's level. A weaker reading would be considered good news for bonds and could help lower mortgage rates as it would point towards a manufacturing sector that was softer than many had thought.

The final report of the week is January's preliminary reading to the University of Michigan's Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to slightly change mortgage rates. If consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. Forecasts are calling for a reading of 96.5, which would be a decline from November's 98.3. The lower the reading, the better the news it is for mortgage rates.

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