Thursday’s bond market has opened in negative territory following mixed economic data, even though stocks are in selling mode during early trading. The major stock indexes are showing sizable losses with the Dow down 115 points and the Nasdaq down 39 points. The bond market is currently down 12/32 (2.08%), but due to strength late yesterday afternoon we may not see much of a change in this morning’s mortgage rates if comparing to Wednesday’s morning pricing.
There were three pieces of data posted early this morning, none of which are considered to be key or highly important. The first was last week’s unemployment update that showed 262,000 new claims for unemployment benefits were filed last week. This was a large decline from the previous week’s revised 296,000 initial claims, indicating the employment sector strengthened last week. That makes the data bad news for bonds and mortgage rates. It is worth noting that because this is only a weekly snapshot of the sector, it usually does not influence mortgage rates. Unfortunately, this was enough of a variance from forecasts to have a negative impact on bond trading and this morning’s mortgage pricing.
The second release of the morning was March’s Personal Income and Outlays data, giving us a measurement of consumer ability to spend and current spending levels. The report revealed no change in income and a 0.4% rise in spending. Both readings were weaker than what analysts were expecting, so we can consider them good news for bonds and mortgage rates. However, traders don’t seem to be too impressed with the news because this was the most important of the three reports and we are still showing bonds losses.
We also got the 1st Quarter Employment Cost Index (ECI) this morning. It showed a 0.7% increase, slightly exceeding expectations of a 0.6% rise. Since it tracks employer costs for worker wages and benefits that helps us measure wage inflation, the stronger reading makes the data slightly unfavorable for the bond and mortgage market.
The week closes tomorrow with two more reports, with one being considered a key piece of data for bonds and mortgage rates. The University of Michigan will update their Index of Consumer Sentiment for April just before 10:00 AM ET tomorrow. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for little change from the preliminary reading of 95.9. This means that surveyed consumers were just as optimistic about their own financial situations as they were earlier this month. This data is relevant because if consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. I don’t expect this report to have a significant impact on bonds and mortgage pricing unless it shows a noticeable revision due to the importance of the day’s second release.
The Institute for Supply Management (ISM) will post their manufacturing index for April late tomorrow morning in the second highly important report of the week. This is usually the first important economic report released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing sector growth and could hurt bond prices, pushing mortgage rates higher. Analysts are expecting to see a reading of 51.9, up from March’s 51.5. Ideally, bond traders would like to see a reading below 50.0 as it would hint at contraction in the manufacturing sector rather than growth, but a decline from March’s level would still be good news for mortgage shoppers.