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Thursday’s bond market has opened well in negative territory due to
stronger than expected results from today’s important economic data. The
stock markets are showing sizable gains with the Dow up 137 points while
the Nasdaq has gained 39 points. The bond market is currently down 24/32,
which will erase yesterday’s afternoon improvements and then some. If your
lender did not revise rates lower late yesterday, you should see an
increase in this morning’s rates of approximately .125 - .250 of a discount
point. If your lender did change rates intra-day yesterday, the increase
this morning will likely be approximately .375 - .500 of a discount point.
Both of this morning’s economic releases revealed stronger than expected
results. Early this morning, the Labor Department said 326,000 new claims
for unemployment benefits were filed last week. This was much lower than
the 345,000 that was expected and the previous week’s revised total,
indicating that the employment sector was stronger than many had thought.
The Institute for Supply Management (ISM) gave us their July manufacturing
index late this morning, announcing a reading of 55.4 that exceeded
forecasts by several points. That means that surveyed business executives
felt business was much stronger in July than analysts were expecting to
see. Therefore, the data is bad news for the bond market and mortgage
rates, especially following yesterday’s stronger than forecasted GDP
reading. Data that points towards a strengthening economy has a negative
impact on long-term securities such as mortgage-related bonds.
Tomorrow morning has three reports scheduled for release that are likely to
influence bond trading and mortgage pricing with one arguably the most
important report we see each month when the Labor Department posts their
monthly Employment report for July. This report gives us the U.S.
unemployment rate, number of jobs added or lost during the month and the
average hourly earnings reading for July. The best scenario for the bond
market is rising unemployment, a sizable loss of jobs and little change in
earnings. It is expected to show that the unemployment rate slipped 0.1% to
7.5% last month while approximately 175,000 jobs were added to the economy.
Due to the importance of these readings, we will most likely see quite a
bit of volatility in the markets and mortgage pricing tomorrow morning
following their 8:30 AM ET posting.
June's Personal Income and Outlays data will also be posted early tomorrow
morning. This report helps us measure consumer ability to spend and current
spending habits. If it shows sizable increases, bond selling could lead to
higher mortgage rates. Current forecasts are calling for an increase of
0.5% in income and a 0.4% rise in spending. A larger than expected increase
in income means consumers have more funds to spend, which is not favorable
to bonds because consumer spending makes up over two-thirds of the U.S.
economy. We would like to see declines in spending and income that would
indicate economic weakness, but the smaller the increase in each, the
better the news for mortgage rates.
The third report of the day and final release of the week will be June's
Factory Orders data at 10:00 AM ET. It helps us measure manufacturing sector
strength by tracking orders for both durable and non-durable goods during
the month of June. It is similar to last week's Durable Goods Orders report
that tracks orders for big-ticket items only. Since a significant portion
of the data was released last week, this report likely will not have much
of an impact on the markets. Analysts are expecting to see an increase in
new orders of approximately 2.2%. A smaller than expected increase would be
considered good news for bonds and mortgage pricing, but due to the
importance of the morning’s other data, I don’t believe this report will
have much of an influence on mortgage rates, regardless of its results.
If I were considering financing/refinancing a home, I would.... Lock if my
closing was taking place within 7 days... Lock if my closing was taking
place between 8 and 20 days... Lock if my closing was taking place between
21 and 60 days... Lock if my closing was taking place over 60 days from
now...
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