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Wednesday’s bond market opened in negative territory as yesterday’s late weakness carried into overnight and early morning trading. Those losses expanded after the release of a private-sector employment-related reports that showed much stronger results than expected. The stock markets are showing minor gains with the Dow up 24 points and the Nasdaq up 11 points. The bond market is currently down 15/32, which with yesterday’s afternoon weakness will likely push this morning’s mortgage rates higher by approximately .500 – .625 of a discount point higher than Tuesday’s morning pricing.
There were three economic reports posted this morning, but none were considered to be highly important. The first was October’s Goods and Services Trade Balance at 8:30 AM ET that revealed a $40.6 billion trade deficit. This nearly matched forecasts and had no impact on this morning’s mortgage pricing.
Late this morning, September and October’s New Home Sales reports were released. They showed that sales of newly constructed homes fell in September but spiked in October. The 25.4% increase in sales in October was a record that dates back over 30 years. This indicates recent growth in the new home portion of the housing sector, making the data negative for the bond market and mortgage rates.
None of that data had much of an impact on this morning’s trading. What did catch everyone off-guard was the ADP payroll report that tracks changes in their client’s payroll numbers in the private sector. Since this isn’t nearly as complete as the monthly governmental Employment report, it usually has a minimal effect on the bond market and mortgage rates. Today is one of those exceptions because it showed a sizable upward revision to October’s numbers (130K to 184K) and 215,000 new jobs in November when analysts were expecting to see only 160,000. Those numbers point towards strong employment sector growth over the past two months, making it extremely unfavorable to the bond and mortgage markets. This is especially true because the monthly Labor Department report will be posted Friday morning and some traders are now expecting to see stronger numbers in October and November’s data from that report also.
As if there wasn’t enough going on already today, we have more to watch this afternoon. The Federal Reserve will release their Beige Book at 2:00 PM ET today. The report is named simply after the color of its cover and details economic conditions by Fed region. That information is relied upon heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any noticeable changes from the last update. More times than not though, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist. Accordingly, if we get a reaction to the report, it will come shortly after 2:00 PM ET.
Tomorrow has three more pieces of economic data that we need to watch. The first of two revisions to the 3rd Quarter Gross Domestic Product (GDP) will be posted at 8:30 AM ET morning. It is expected to show an upward revision from last month’s preliminary reading of a 2.8% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. Current forecasts call for a 3.0% rate of growth, meaning that there was a little more economic activity during the third quarter than previously thought. This would be bad news for mortgage rates because solid economic growth makes long-term securities such as mortgage-related bonds less appealing to investors. A modest increase shouldn’t be too detrimental to rates since it is expected. On the other hand, a sizable revision upward or downward could significantly influence the financial and mortgage markets.
Also at 8:30 AM, we will get last week’s unemployment numbers from the Labor Department. They are expected to announce that 330,000 new claims for unemployment benefits were filed last week, up from the previous week’s 316,000. The higher the number of new claims, the better the news it is for mortgage rates because rising claims indicates a weakening employment sector.
October’s Factory Orders will be posted late tomorrow morning. This report is similar to the Durable Goods Orders report that was released last week, except this one includes manufacturing orders for both durable and non-durable goods. This data usually isn’t a major influence on bond trading, but it does carry enough importance to impact mortgage rates if it shows a sizable variance from forecasts. Analysts are expecting to see a 1.0% decline in new orders. Ideally, we would like to see a larger decline in orders as it would signal manufacturing sector weakness.