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Tuesday’s bond market has opened well in negative territory due to strength in the global stock markets over the holiday weekend and stronger than expected results from one of the more important monthly economic reports. The stock markets are reacting favorably to the data during early trading, pushing the Dow higher by 85 points and the Nasdaq up 36 points. The bond market is currently down 28/32, which will likely push this morning’s mortgage rates higher by approximately .375 – .500 of a discount point if comparing to Friday’s morning pricing.
The Institute for Supply Management (ISM) gave us today’s only relevant economic data with the release of their August manufacturing index late this morning. They announced a reading of 55.7 that was higher than the 53.6 that was expected and an increase from July’s reading of 55.4. This was also the highest reading since June 2011, indicating manufacturing sector growth. That makes the data negative for the bond market and mortgage rates, especially since analysts were expecting to see a decline in manufacturer sentiment.
There are five more economic reports scheduled for release this week, one of which is not only arguably the most important monthly report we see but also is expected to be highly influential on the Fed’s decision of whether or not to start the tapering of their bond buying program later this month. The markets were closed yesterday due to the Labor Day holiday and over the long weekend we had a couple things happen that are affecting this morning’s trading. The most significant was President Obama’s decision to delay dealing with the Syria crisis until Congress can be involved next week. The flight to the safety of bonds that we saw last week when it appeared military action could take place at any time now appears to have unwound for the time being. In other words, the funds that were shifted into bonds last week to escape the stock volatility that usually comes when turmoil involves military action have now been moved back out of bonds as the crisis temporarily! calms down. That doesn’t mean that we won’t see a repeat of last week’s move if the U.S. does take action against the Syrian government. This is an issue that may remain on the sideline the next couple days. However, there is a strong likelihood of it affecting the markets and mortgage rates again in the very near future.
Tomorrow has two reports scheduled for release. The first is likely to have little impact on the markets and mortgage rates. That is July’s Goods and Services Trade Balance data 8:30 AM ET tomorrow. This report will give us the size of the U.S. trade deficit and is expected to show a deficit of approximately $38.2 billion, which would be an increase from June’s $34.2 billion. However, I would consider this the least important of this week’s events, meaning it will likely have little impact on tomorrow’s bond trading or mortgage rates unless it varies greatly from forecasts.
The day’s second release will come from the Federal Reserve, who will post its Beige Book report at 2:00 PM ET. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of data when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the previous release, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed’s next move when they meet September 17-18.
Overall, this is likely to be a highly active week for the financial markets and mortgage pricing. Friday is the key day with the Employment report but as we are seeing this morning, today’s report carried some significance also. We also need to watch the Syria crisis as it could cause ripples in the world markets and here at any time. Since Congress isn’t scheduled to be back in session to take up the matter until next week, it may not have much of an impact on this week’s trading. However, if they do come back to session this week to address it, the markets will be focused on it also.