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Thursday’s bond market has opened in negative territory again following stronger than expected economic data and early stock strength. The major stock indexes are showing noticeable gains with the Dow up 74 points and the Nasdaq up 6 points. The bond market is currently down 10/32, which will likely push this morning’s mortgage rates higher by approximately .125 of a discount point.
Yesterday’s afternoon release of the Fed Beige Book did not reveal any significant surprises. For the most part, it indicated that economic activity grew at a modest to moderate pace in the majority of Fed Reserve Bank regions between January and early February. The regions that did not report growth were in severe weather areas. The news had little impact on the bond market or mortgage rates during late trading yesterday.
The first of this morning’s three pieces of economic data was last week’s unemployment figures that revealed 323,000 new claims for unemployment benefits were filed last week. This was a sizable decline from the previous week’s revised 349,000 initial claims, hinting at employment sector strength. That makes the data slightly negative for the bond and mortgage markets.
Also posted at 8:30 AM ET was the revised Productivity index for the 4th Quarter of last year. It showed that worker productivity rose at a 1.8% annual pace that softer than the 2.5% that was forecasted and much weaker than the preliminary estimate of 3.2%. Even a secondary reading that tracks wage costs came in higher than expected. Since higher levels of worker output per hour worked helps economic growth with low inflationary pressures, we should also consider this data to be slightly unfavorable for mortgage rates.
The final report of the day was January’s Factory Orders at 10:00 AM ET. The Commerce Department announced that new orders at U.S. factories for durable and non-durable goods fell 0.7% in January. This was slightly softer than the 0.5% decline that analysts were expecting to see, but not enough of a variance to influence bond trading or help mortgage rates.
Tomorrow morning brings us the release of the almighty monthly Employment report. The Labor Department will release February’s Employment report at 8:30 AM ET, giving us the unemployment rate, number of new jobs added or lost and average hourly earnings change. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 6.6% and approximately 160,000 new jobs added to the economy. Stronger than expected readings will likely fuel a stock market rally and further selling in bonds that would cause a sizable upward move in rates. On the other hand, disappointing numbers would raise concerns about the economy’s ability to continue to grow and could erase all or most of this week’s bond losses and mortgage pricing increase. Traders are also expecting to see some downwa! rd revisions to January’s numbers that may also contribute to tomorrow’s bond selling or buying.
January’s Goods and Services Trade Balance report will also be released at 8:30 AM ET tomorrow morning, but it will draw little interest from market participants. It will give us the size of the U.S. trade deficit, which does not directly impact mortgage rates and is the week’s least important piece of news. Current forecasts are calling for a $37.3 billion trade deficit during January, but with it being posted at the same time as the almighty employment report, there is little possibility of this report affecting mortgage rates.