Tuesday’s bond market has opened in negative territory as profit-taking from the recent rally continues. Early stock gains of 184 points in the Dow and 16 points in the Nasdaq are also contributing to bond losses. The bond market is currently down 23/32 (1.75%), which should push this morning’s mortgage rates higher by approximately .250 of a discount point.
December’s Factory Orders data that was posted at 10:00 AM ET this morning actually gave is favorable results. The report showed a 3.4% decline in new orders at U.S. factories for both durable and non-durable goods. This was much weaker than the 2.0% decline that was expected, indicating the manufacturing sector was softer in December than many had thought. Since signs of economy weakness make bonds more attractive to investors, this was technically good news for mortgage rates. Unfortunately, this was not enough to offset the overall negative tone in the bond market.
Tomorrow’s only report worth watching is the ADP Employment report that is set for release at 8:15 AM ET. This release has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. It tracks changes in private-sector jobs of the company’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and also is not a true reflection of the broader employment picture. It also is not very accurate in predicting results of the monthly government report that usually follows a couple days later. Still, because we see a reaction to its results, it is being addressed. Analysts are calling for it to show 230,000 new private-sector jobs were added last month.
Thursday will be a light day in terms of economic releases, but traders will be preparing for Friday’s major news. We will get January’s Employment report early Friday morning. Tomorrow morning’s ADP report may influence how some investors and market participants prepare for Friday. Therefore, a sizable variance from forecasts tomorrow may snowball into Thursday’s pre-Employment report trading.