Thursday’s bond market has opened well in negative territory as yesterday’s weakness carried into overnight and overseas trading. That negative momentum continued this morning after monetary policy moves by the European Central Bank (ECB) fell short of what traders were expecting. The stock markets are having a similar reaction to the news, pushing the Dow lower by 102 points and the Nasdaq down 25 points. The bond market is currently down 26/32 (2.26%), which will likely cause an increase in this morning’s mortgage rates of approximately .250 of a discount point.
Yesterday afternoon’s Fed Beige Book release didn’t reveal too many surprises. It pointed towards economic growth in most of the Fed regions with employment getting stronger. The bit of good news for bonds was noted softness in the manufacturing sector, but after Tuesday’s ISM index, this shouldn’t have caught too many people off guard. Overall, the report did nothing to alter the theory that the Fed will make its first rate hike at this month’s FOMC meeting. The impact this news had on mortgage pricing was minimal.
Last week’s unemployment numbers were released at 8:30 AM ET this morning, revealing 269,000 new claims for benefits. This was a slightly higher number than the 267,000 that was expected and a noticeable increase from the previous week’s 260,000 initial claims, indicating the employment sector softened last week. However, even though that is good news for bonds, this is only a weekly report preceding a major monthly employment release. Therefore, it has had little influence on this morning’s bond trading or mortgage rates.
October’s Factory Orders report was posted at 10:00 AM ET. The Commerce Department announced that new orders for durable and non-durable goods rose 1.5% in October. This was a little stronger than the 1.1% that expected, making the data bad news for mortgage rates. Fortunately though, this report has not affected this morning’s trading or mortgage rates.
Fed Chair Yellen is currently speaking before a Joint Congressional Economic Committee in Washington D.C. Her words so far have not revealed any noticeable changes from previous comments and are very close to what she said yesterday. Her speech still has most analysts predicting an increase in key short-term interest rates during the December 15-16 FOMC meeting. It is worth noting though that tomorrow’s major economic report has the potential to alter those predictions.
Tomorrow morning brings us the release of the almighty monthly Employment report. This is arguably the most important monthly report we see, so its impact on the markets and mortgage rates is often significant. It is comprised of many statistics and readings, but the most watched ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate of 5.0% while 195,000 new jobs were added to the economy last month. The income reading is forecasted to show an increase of 0.2%. An ideal scenario for mortgage shoppers would be a higher unemployment rate, a much smaller increase in payrolls (or a decline) and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see bond prices rise and mortgage rates move much lower because it could delay the expected Fed rate increase. However, stronger than expected readings would likely fuel a bond sell-off that would lead to higher mortgage rates.
This report is always considered a key release, but extra attention will be given to this month’s Employment report because it is the last one before the FOMC meeting. If this report meets or exceeds expectations, it is highly likely that the Fed will make a move this month. On the other hand, weaker than expected numbers throws into question whether they will make that rate hike now or wait for the first 2016 meeting to do so. Any possibility of a delay in the rate hike should be taken as good news in the bond and mortgage markets.