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Wednesday’s bond market has opened flat despite favorable economic data and an uneventful open in stocks. The major stock indexes are nearly unchanged from yesterday’s close, as is the bond market. We will still likely see a slight improvement in this morning’s mortgage rates, but that is due to strength in trading late yesterday and not a result of this morning’s economic news.
The Commerce Department announced early this morning that new orders for durable goods rose just 0.1% last month, falling short of the 0.5% that was expected. In addition, a secondary reading that tracks orders with larger transportation items excluded such as new airplanes, fell 0.1% when analysts were expecting to see a 0.9% increase. Also worth noting are somewhat sizable downward revisions to July’s readings. That news indicates the manufacturing sector was not as strong as many had thought, making the data favorable for the bond market and mortgage rates. However, the variance in the overall reading wasn’t enough to cause much alarm because the data is known to be quite volatile from month to month. Unfortunately, that has prevented a strong opening in the bond market despite the fact that this was the week’s single most important economic release.
They also gave us today’s second piece of economic data with the release of August’s New Home Sales at 10:00 AM ET. It revealed a 7.9% increase in sales of newly constructed homes last month that exceeded forecasts, hinting at strength in the new home portion of the housing sector. That technically makes the data bad news for mortgage rates, but since this report does not carry a high level of significance in the markets, its impact on today’s trading and mortgage pricing has been minimal.
The Treasury is selling 5-year Notes today and 7-year Notes tomorrow. These sales have the potential to influence broader bond trading and possibly mortgage rates, but they won’t be the cause of a significant move in pricing. At the most, a strong demand from investors will lead to a small improvement in rates while a weak demand could cause a minor upward revision to pricing. Results of today’s sale will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
Tomorrow also has two pieces of economic data scheduled to be posted that may have an impact on mortgage rates. The first is the weekly unemployment update from the Labor Department at 8:30 AM ET. They are expected to announce that 325,000 new claims for unemployment benefits were filed last week, up from the previous week’s 309,000. The larger the number of initial claims, the better the news it is for the bond and mortgage markets because rising claims indicates employment sector weakness. Although, there is little faith in this week’s numbers because of technical difficulties in the reporting process from Nevada and California over the past couple weeks. In other words, we really can’t rely on the numbers to accurately reflect a weekly snapshot of the employment sector. Therefore, I would be surprised if tomorrow’s release has any influence on mortgage rates.
The final revision to the 2nd Quarter Gross Domestic Product (GDP) will also be posted early tomorrow morning. Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don’t see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show a 0.1% upward revision from the previous estimate of a 2.5% increase in the GDP. It will take a fairly large revision for this data to move mortgage rates, but the lower the reading, the better the news it is for rates.