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Wednesday’s bond market has opened flat with no major economic data set for release this morning. Stocks are showing gains with the Dow up 86 points and the Nasdaq up 28 points. The bond market is currently nearly unchanged from yesterday’s close, but we should still see a slight improvement in this morning’s mortgage rates due to strength late Tuesday.
This morning’s only relevant economic data was July’s Goods and Services Trade
Balance data at 8:30 AM ET. It revealed that the U.S. trade deficit stood at
$39.2 billion in July, exceeding forecasts of $38.2 billion. However, this data
affects the value of the U.S. dollar versus other currencies more than it
directly influences bond trading and mortgage pricing. The variance between
forecasts and actual results was not wide enough to draw much attention from
the bond or mortgage markets.
The Federal Reserve will post their Beige Book report at 2:00 PM ET. This
report, which is named simply after the color of its’ cover, details current
economic conditions by Fed region. It is 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
this afternoon as analysts adjust their theories on the Fed’s next move when
they meet September 17-18.
Tomorrow has three pieces of economic data worth watching. The first is the
weekly unemployment update from the Labor Department at 8:30 AM ET, who is
expected to announce that 333,000 new claims for unemployment benefits were
filed last week. This would be a slight increase from the previous week’s
331,000. The larger the increase in initial claims, the better the news it is
for the bond market and mortgage rates because rising claims indicate a
weakening employment sector.
The second report of the day will be the revised 2nd Quarter Productivity
numbers at 8:30 AM also. This data measures employee productivity in the workplace.
Strong levels of productivity allow the economy to expand without inflation
concerns. It is expected to show an upward change from the previous estimate of
a 0.9% increase. Forecasts are currently calling for a 0.6% upward revision,
meaning productivity was better than previously thought from April through
June. This would technically be good news for the bond market and mortgage
rates, but this data is considered to be only moderately important to the
markets. Therefore, it will take a sizable variance from forecasts for this
report to affect mortgage rates. Favorable news would be a sizable increase in
productivity and a decline in a secondary reading that tracks labor costs.
August’s Factory Orders is the final report of the morning, coming at 10:00 AM
ET from the Commerce Department. This manufacturing sector report is similar to
last week’s Durable Goods Orders release, but also includes orders for
non-durable goods. It can impact the bond market enough to change mortgage
rates if it varies from forecasts by a wide margin. Analysts are forecasting a
decline of 3.7% in new orders, meaning manufacturing activity slowed
considerably in August. This would be good news for the bond market and
mortgage pricing, but I believe we will need to see a much larger decline for
this report to create a noticeable improvement in rates.
We also will get a couple of private sector employment reports. They are not
nearly influential on the markets as the government-issued reports are, but can
have some impact on trading if they show a significant surprise. This is
because employment-related data is so crucial to predicting economic strength
or weakness and the Fed is closely watching several indicators in the
employment sector to determine their next move. Tomorrow’s reports will be
posted before the markets open, so we will have those results before morning
mortgage rates are issued. However, there is a good chance that they will be a
non-factor in tomorrow’s pricing.