Wednesday’s bond market has opened in positive territory following the
release of some favorable economic data. The stock markets are showing
early weakness with the Dow down 70 points and the Nasdaq down 16 points.
The bond market is currently up 12/32, which should improve this morning’s
mortgage rates by approximately .125 - .250 of a discount point.
Weakness late yesterday is limiting this morning’s improvement, but I believe
we may see further losses in stocks and strength in bonds as we head into
Friday’s major economic data (hence the optimistic stance towards mortgage
rates this week). There certainly is no guarantee that this is what will
take place, but weaker than expected employment numbers are likely to fuel
a sizable sell-off in stocks and a nice rally in bonds. Unfortunately,
strong numbers will have an opposite effect and cause mortgage rates to
move higher. If Monday’s ISM number is any indication of what we can expect
from May’s readings, we should be in good shape.
The first of today’s events was the revised 1st Quarter Productivity and
Costs data at 8:30 AM ET that showed a 0.5% annual rate in the worker
productivity reading and a sizable decline of 4.3% in the labor cost
reading. The productivity reading matched forecasts and indicates that
worker output per hour grew at a modest pace during the first three months
of the year. Higher levels of productivity allows the economy to expand
with low inflationary concerns, so ideally, the bond market prefers to see
larger increases. The cost reading was heavily distorted due to revised
figures that were related to end of year compensation in the last quarter
of 2012 before higher tax rates kicked in, making first quarter numbers
look much lower compared to 4th quarter 2012. Since the productivity
reading matched forecasts and the labor cost reading isn’t credible due to
the revisions, we can consider this data neutral to slightly positive for
the bond market and mortgage rates.
The Commerce Department gave us April's Factory Orders data at 10:00 AM ET
this morning, announcing an increase of 1.0% in new orders in durable and
non-durable goods. This was a bit weaker than the 1.6% increase that was
expected. Since that means the manufacturing sector was not as strong as
many thought, we can consider the data good news for mortgage rates.
Also worth noting is the release of the Federal Reserve's Beige Book at
2:00 PM ET this afternoon. This report details economic conditions
throughout the U.S. by Federal Reserve region and is relied upon heavily by
the Fed to determine monetary policy during their FOMC meetings. If it
shows surprisingly softer economic activity since the last report, the bond
market may thrive and mortgage rates could improve later today. On the
other hand, if the report reveals signs of inflation growing or rapidly
expanding economic activity in many regions, we could see mortgage rates
revise higher during afternoon trading.
Tomorrow’s only relevant data is the weekly unemployment update from the
Labor Department. They are expected to announce that 348,000 new claims for
unemployment benefits were filed last week. This would be a decline from
the previous week’s 354,000 initial claims, hinting that the employment
sector strengthened slightly last week. The higher the number of new
claims, the better the news it is for the bond market and mortgage rates as
it would indicate a weakening employment sector. This report usually
doesn’t heavily influence mortgage rates because it tracks only a single
week’s worth of initial filings. However, since the almighty monthly report
comes Friday morning, we may see more of a reaction to this weekly report
than we usually do.
If I were considering financing/refinancing a home, I would.... Lock if my
closing was taking place within 7 days... Float if my closing was taking
place between 8 and 20 days... Float if my closing was taking place between
21 and 60 days... Float if my closing was taking place over 60 days from now...
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