Thursday’s bond market has opened in positive territory due mostly to stock weakness. The major stock indexes are posting sizable losses with the Dow down 102 points and the Nasdaq down 41 points. The bond market is currently up 8/32, which combined with strength late yesterday should improve this morning’s mortgage rates by approximately .250 of a discount point if comparing to Wednesday’s morning pricing.
Last week’s unemployment figures were released at 8:30 AM ET this morning. They revealed 270,000 new claims for unemployment benefits were filed last week, up from the previous week’s 267,000 initial claims. Analysts were expecting to see 270,000, so there was no surprise in the release. This is a minor report and it nearly matched expectations. Therefore, we can consider the news neutral for the bond market and mortgage rates.
Tomorrow morning closes the week’s calendar with the release of July’s Employment report at 8:30 AM ET. This report gives us the U.S. unemployment rate, number of jobs added or lost during the month and average hourly earnings for July. The best scenario for the bond market is rising unemployment, a sizable loss of jobs and little change in earnings. While many believe the preliminary reading to the GDP is the single most important report in general, it is posted quarterly rather than monthly like the Employment report. Tomorrow’s report is expected to show that the unemployment rate remained at 5.3% last month while approximately 229,000 new jobs were added to the economy.
This is a key economic report and is often a broad market-mover. Due to the importance of the data, we will most likely see quite a bit of volatility in the markets and mortgage pricing tomorrow morning. If the data is weaker than expected, bonds should rally, pushing mortgage rates lower. On the other hand, stronger numbers will fuel the theory that the Fed is likely to raise short-term rates at September’s FOMC meeting instead of a later one. There are potential gains if the report is favorable, but significant risk also. Accordingly, please be careful of floating an interest rate and closing in the near future.