Princeton Capital Blog

This Week’s Market Commentary

March 31st, 2014

Mortgage Market CommentaryThis week brings us the release of five economic reports that have the potential to move mortgage rates with two of them considered to be highly important to the markets. The week kicks off Monday with none of those reports but we do have a public speaking engagement by Fed Chairman Yellen. She is set to speak at a conference in Chicago at 9:55 AM ET. The topic is not expected to bring any surprises or juicy tidbits about the economy or monetary policy. However, we always have the possibility of something said catching the attention of market participants. I am not concerned about this speech though and feel there is little likelihood of mortgage rates moving to anything that she may say.

The first relevant economic report of the week is actually one of those highly important ones and comes late Tuesday morning when the Institute for Supply Management (ISM) will release their manufacturing index. This index gives us an important measurement of manufacturer sentiment by surveying manufacturing executives. It is the first piece of data that we see each month that covers the preceding month. In other words, it is the freshest economic data each month. A reading above 50 means more surveyed executives felt business improved during the month than those who said it had worsened. This month’s report is expected to show a reading of 54.0, which would be an increase from February’s reading of 53.2. This means that analysts think business sentiment improved from last month’s level. That would be relatively bad news for the bond market and mortgage rates. A noticeable decline would be favorable for rates while an increase would be considered negative.

The ADP Employment report is set for release early Wednesday morning, which has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. This report tracks changes in private-sector jobs of ADP’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and is not a true reflection of the broader employment picture. It also is not accurate in predicting results of the monthly government report that usually follows a couple days later. Still, because we have seen more reaction than historically to the report recently, we should be watching it. Analysts are expecting it to show that 193,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.

February’s Factory Orders will be released late Wednesday morning. This data is similar to last week’s Durable Goods Orders report, except it includes orders for both durable and non-durable goods, giving us another measurement of manufacturing sector strength. It is considered to be only moderately important to the bond and mortgage markets, so unless it varies greatly from forecasts of a 1.2% increase, I suspect that the data will have a minimal impact on Wednesday’s mortgage rates.

Thursday’s only monthly data is February’s Goods and Services Trade Balance that will give us the size of the U.S. trade deficit, but is not considered to be of high importance to mortgage rates. This report can influence other markets more than bonds and usually has little impact on mortgage rates unless it shows a significant variance from forecasts. Since there is no other data to drive trading Thursday, it is worth watching. It is expected to show a trade deficit of $39.5 billion. Regardless of its results though, I doubt this data will have a noticeable impact on Thursday’s mortgage rates.

The biggest news of the week will come early Friday morning when the Labor Department posts March’s Employment report, revealing the U.S. unemployment rate and the number of jobs added or lost during the month. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate slipped from 6.7% to 6.6% and that approximately 205,000 payrolls were added to the economy during the month. A higher unemployment rate and a much smaller than expected payroll number would be good news for bonds and would likely push mortgage rates lower Friday morning because it would indicate weaker than thought conditions in the employment sector of the economy. However, stronger than expected results would probably fuel a stock rally and bond selling that leads to a sizable increase in mortgage pricing.

Overall, Friday is the biggest day of the week due to the significance of the Employment report but I suspect we will have an active day in mortgage rates Tuesday also. The middle part of the week should be relatively calm, at least compared to Tuesday and Friday’s trading although we should see some positioning by traders as we get closer to Friday. Keep in mind though that we can see the markets change quickly any day, so please proceed cautiously if still floating an interest rate and closing in the near future.

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