Princeton Capital Blog

This Week’s Market Commentary

July 1st, 2012

This week brings us the release of only three 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 this year, so we have an early and full-day closure to work around.

Unlike many Mondays, tomorrow does bring us some very important economic data. This would be the Institute of Supply Management’s (ISM) manufacturing index for June late tomorrow morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. A reading above 50 means that more surveyed executives felt business improved during the month than those who felt it had worsened. Analysts are expecting a reading of 52.2. That would indicate that more manufacturers felt business worsened from the previous month, when we saw a 53.5 reading. Good news for bonds and mortgage rates would be a weaker than expected reading, particularly something below the recessionary threshold of 50.0.

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 because it measures manufacturing sector strength. Current expectations are showing a 0.4% increase in new orders from April’s levels. A decline in orders would be considered good news for the bond market and could help lower mortgage rates slightly Tuesday.

The U.S. financial and mortgage markets will be closed Wednesday in observance of the Independence Day holiday. They will also close early Tuesday afternoon ahead of the holiday and will reopen Thursday morning for regular trading hours. Considering recent events from Europe, who will treat Wednesday as any other day of business, we could see bond traders sell holdings before the 2:00 PM ET close Tuesday to protect themselves over the holiday. That raises the possibility of seeing an upward revision to mortgage rates Tuesday 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 likely help boost bond prices and lower mortgage rates Friday. However, stronger than expected readings could be extremely detrimental to mortgage pricing. Analysts are expecting to see the unemployment rate remain at 8.2%, with 100,000 jobs added and a 0.2% rise in earnings.

Overall, I am expecting to see a fairly active week for the financial markets and mortgage rates. We have a small increase in rates waiting for us tomorrow morning due to weakness in bonds late Friday. The most important day of the week is Friday, but tomorrow could also be a key day in determining whether rates move higher or lower on the week. Furthermore, the stock markets will also heavily affect bond trading if they rally or go into a sell-off any day of the week. Therefore, I recommend maintaining contact with your mortgage professional if still floating an interest rate.

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