Princeton Capital Blog

This Week’s Market Commentary

July 1st, 2013

Mortgage Market CommentaryThis week brings us the release of only four pieces of relevant economic data that may influence mortgage rates, but two of them are considered to be highly important. In addition, the Independence Day holiday falls in the middle of the week again this year, so we also have an early and full-day closure to work around.

Unlike many Mondays, this week’s does bring us some very important economic data. The Institute of Supply Management (ISM) will post their manufacturing index for June late Monday morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. May’s reading that was posted last month surprised many when it came in at 49.0. A reading below 50 means that more surveyed executives felt business worsened during the month than those who felt it had improved. Analysts are expecting a reading of 50.5, indicating slight improvement in manufacturer sentiment. Good news for the bond market and mortgage rates would be another decline in the index, signaling worsening conditions in the manufacturing sector.

The Commerce Department will post May’s Factory Orders data late Tuesday morning, which is similar to the Durable Goods Orders report that was released last week. The biggest difference is that this week’s report covers both durable and non-durable goods. It usually doesn’t have as much of an impact on the bond market as the durable goods data does, but can lead to changes in mortgage pricing if it varies greatly from forecasts. Current expectations are showing a 2.0% increase in new orders from April’s levels, pointing towards sector strength. A decline in orders would be considered good news for the bond market and could help lower mortgage rates slightly Tuesday.

May’s Goods and Services Trade Balance will be released at 8:30 AM ET Wednesday. It is the week’s least important data and probably will not influence mortgage rates. It measures the size of the U.S. trade deficit and is expected to show a $40.8 billion deficit. This data usually does not directly affect mortgage rates, but it does influence the value of the U.S. dollar versus other currencies. A stronger dollar makes U.S. securities more attractive to international investors because they are worth more when sold and converted to the investor’s domestic currency. But unless we see a significant variance from forecasts, I don’t believe this data will lead to a change in mortgage rates Wednesday.

The U.S. financial and mortgage markets will be closed Thursday in observance of the Independence Day holiday. They will also close early Wednesday afternoon ahead of the holiday and will reopen Friday morning for regular trading hours. We could see bond traders sell some holdings before the 2:00 PM ET close to protect themselves over the holiday, which raises the possibility of seeing an upward revision to mortgage rates Wednesday afternoon.

The last data of the week is arguably the single most important report we see each month. The Labor Department will post June’s unemployment rate, number of new payrolls added or lost and average hourly earnings early Friday morning. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, a large decline in payrolls and no change in earnings. Weaker than expected readings would raise concerns about economic growth and likely help boost bond prices and lower mortgage rates Friday. However, stronger than expected readings could be extremely detrimental to mortgage pricing as it would help support the theory that we will see good economic growth later this year. Analysts are expecting to see the unemployment rate remain at 7.6%, with 165,000 jobs added and a 0.2% rise in earnings.

Overall, I am expecting to see another fairly active week for the financial markets and mortgage rates. We have a small improvement in rates waiting for us Monday morning due to strength in bonds late Friday. The most important day of the week is Friday, but Monday could also be a key day in determining whether rates move higher or lower on the week. With two of the week’s three full-length trading days having key economic data scheduled for release, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.

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