Wednesday’s bond market has opened in negative territory again following stronger than expected manufacturing data and another round of early sizable stock gains. Stocks are up big again during early trading as they were yesterday before closing in negative ground. The Dow is currently up 247 points while the Nasdaq is showing a 77 point gain. The bond market is currently down 12/32 (2.12), which should push this morning’s mortgage rates higher by approximately .125 of a discount point.
The Commerce Department announced at 8:30 AM ET that July’s Durable Goods Orders rose 2.0% when analysts were expecting to see a 0.6% decline. A secondary reading that excludes more volatile transportation-related orders rose 0.6% when forecasts were calling for 0.4%. These readings point toward a strengthening manufacturing sector, making the data bad news for bonds and mortgage rates.
We also have the first of this week’s two Treasury auctions today that may affect bond trading and mortgage rates. Today’s sale is for 5-year Treasury Notes, followed by 7-year Notes tomorrow. These aren’t the most important auctions we have, but they do carry enough significance to affect the broader bond market and possibly mortgage rates if there was a particularly weak or strong level of interest from investors. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading. A strong demand could help boost bond prices and slightly lower mortgage rates later today.
Tomorrow has two pieces of data scheduled for release. We start with the first revision to the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. This reading is the second of three that we see each quarter. Last month’s preliminary reading revealed that the economy grew at an annual rate of 2.3%. Tomorrow’s revision is expected to show that the GDP actually rose 3.1%, meaning the economy was stronger than previously thought from April through June. A much smaller than expected reading should help lower mortgage rates, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates since traders will be more interested in the current quarter’s activity.
Last week’s unemployment figures will also be posted at 8:30 AM ET tomorrow. They are expected to show that 275,000 new claims for unemployment benefits were filed last week. This would be a slight decline from the previous week’s 277,000 initial filings. The larger the number of new claims, the better the news it is for bonds and mortgage rates because rising claims hint at a softening employment sector.
We also need to watch stocks and overseas markets as they will still be highly influential on trading here. Eyes are focused on China’s markets and economy, so anything out of there will be of strong interest when the markets open tomorrow.