Monday’s bond market has opened in positive territory following weaker than expected economic data. The major stock indexes are mixed with the Dow down 41 points and the Nasdaq up 3 points. The bond market is currently up 4/32 (2.17%), which with some strength late Friday should improve this morning’s mortgage rates by approximately .125 of a discount point.
This morning had two relevant economic reports released. June’s Personal Income and Outlays data came at 8:30 AM ET, revealing a 0.4% increase in income and a 0.2% rise in spending. The income reading was slightly higher than the 0.3% that was forecasted but the spending increase matched expectations. Because consumer spending makes up such a large portion of our economy and bonds prefer to see weaker economic conditions, we should consider this report neutral-to-slightly negative for rates.
The second report of the day came from the Institute for Supply Management (ISM) who announced their manufacturing index slipped from 53.5 in June to 52.7 in July. This is good news for mortgage shoppers because this is considered to be a major release and shows weaker than expected economic conditions. The decline means fewer surveyed manufacturing executives felt business improved last month than did in June. A reading above 50 means more felt conditions improved than said they had worsened, but the lower reading makes the data favorable for bonds and mortgage rates. This data was supposed to be released just before 10:00 AM ET, however it was leaked and hit the wires around 9:15 AM ET.
Tomorrow has one piece of data worth watching in June’s Factory Orders data. It will be released at 10:00 AM ET tomorrow, but is the week’s least important monthly report. This data helps us measure manufacturing sector strength by tracking orders for both durable and non-durable goods during the month of June. It is similar to last week’s Durable Goods Orders report that tracks orders for big-ticket items only. Since a significant portion of the data was released last week, this report likely will not have a big impact on the markets. Analysts are expecting to see an increase in new orders of approximately 1.8%. A smaller than expected increase would be considered good news for bonds and mortgage pricing, but it will take a large variance from forecasts for this report to heavily influence tomorrow’s mortgage rates.
Overall, I am expecting Friday to be the most active days for mortgage rates. The middle days should be calmer and Thursday appears to be the best candidate for least active day. Besides the data we should also watch the major stock indexes for bond and mortgage rates direction. Sizable stock gains should pressure bonds and mortgage pricing. However, if stocks go into selling mode, conditions are right for bonds to benefit, driving mortgage rates lower.