Market Commentary

Updated on January 13, 2025 10:10:20 AM EST

There is no relevant economic data scheduled for release today. We are seeing weekend selling in the global bond markets carry back into this morning's session here. A good part of the weakness overseas is due to last Friday's strong employment data and the impact it had on our bond trading. The data and other factors that are believed will fuel inflation this year have raised concerns the Fed may not be lowering key short-term interest rates as previously thought. Bonds are reacting to the theory that inflation will rise instead of continuing on its downward trend towards the Fed's 2.0% target, pushing yields to their highest level in over a year. If this theory turns out to be accurate and yields continue to rise, it would be troublesome for mortgage rates as they tend to track bond yields.

The rest of the week brings us the release of five monthly economic reports along with a periodic Fed report. Three of those five monthly releases are labeled very important for the markets and should heavily influence opinions about what the Fed will do with key rates in the coming months. We should see the most movement in mortgage pricing the middle days since those are the days with the more influential releases.

Activities begin at 8:30 AM ET tomorrow morning with the release of December's Producer Price Index (PPI). It is one of those three particular reports that all eyes will be on because it measures inflationary pressures at the wholesale level of the economy. There are two readings in the release, the overall and the core data that excludes more volatile food and energy prices. The overall is expected to rise 0.3% from November, while the core data rose 0.2%. These increases would mean wholesale inflation rose last month. Forecasts have the annual readings at up 3.0% and 3.2% respectively. Weaker than expected readings would be favorable news since it would signal inflation is softer than thought, which should lead to bond strength and lower mortgage rates tomorrow morning.

Overall, Wednesday is the most important day of the week for rates due to the importance of the Consumer Price Index (CPI), but Thursday may also bring another noticeable change in rates. The calmest day is likely to be Friday unless something unexpected happens. It is worth noting that having three consecutive days of major economic releases means we could see a big move in rates this week. If still floating an interest rate and closing in the near future, it would be prudent to keep an eye on the markets.

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