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Wednesday’s bond market has opened in negative territory again, extending yesterday’s strong selling. The stock markets are relatively flat, at least compared to the down day Monday and rebound yesterday, with the Dow currently down 10 points and the Nasdaq up 1 point. The bond market is currently down 2/32, but due to heavy selling late yesterday, this morning’s mortgage rates should still be approximately .250 of a discount point higher than Tuesday’s early pricing.
This morning’s only semi-relevant economic data came from payroll processor ADP, who announced an increase of 139,000 private-sector payrolls in February. This was a little lighter than the 150,000 that was expected but not enough of a variance to cause much concern or joy in the markets. In fact, the bond market moved little from where it was just before the 8:15 AM ET release of the report. What was interesting though was a sizable downward revision to January’s payrolls (from 175k to 127k) that has some analysts now thinking we could see a similar downward revision to the governmental figures Friday. For the time being, we can consider the data slightly positive for mortgage rates, at least theoretically.
Later today, we have the Fed Beige Book to watch. This release is named simply after the color of its cover and will be posted at 2:00 PM ET today. It details economic activity throughout the country by Federal Reserve region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading if it shows noticeable difference in economic activity from the last version. It probably will not cause a major sell off in the stock or bond markets as traders start to focus on Friday’s major data, but it is still worth watching.
Tomorrow has three reports scheduled for release, but none of them are considered to be highly important. The first is the revised Productivity index for the 4th Quarter of last year. The preliminary reading posted last month showed an increase of 3.2% in worker output. Analysts are expecting to see a downward revision of 0.7% to last month’s initial reading. Employee productivity is watched fairly closely because a higher level of output per hour is believed to mean that the economy can expand without inflation concerns. However, since this data is quite aged now, it likely will have little impact on Thursday’s mortgage rates unless it shows a significant change.
Also at 8:30 AM ET will be last week’s unemployment figures that are expected to show initial claims for unemployment benefits fell from 348,000 of the previous week to 338,000 this past week. Rising claims for benefits indicates a softening employment sector, so a noticeable decline would be negative news for the bond market and mortgage rates. However, since the monthly report that gives us so much more insight on the labor market will be posted Friday, I don’t believe we will see much of a reaction to tomorrow’s version.
The third report of the day is January’s Factory Orders at 10:00 AM ET, which will give us a measurement of manufacturing sector strength. This data is similar to last week’s Durable Goods, except this report covers orders for both durable and non-durable goods. Current forecasts are calling for a drop in new orders of approximately 0.5%. A larger than expected drop would be good news for the bond market and could lead to an improvement in mortgage rates since it would point towards economic weakness.