Tuesday’s bond market has opened in positive territory despite a surprisingly strong piece of economic news. The stock markets are showing noticeable gains with the Dow up 64 points and the Nasdaq up 22 points. The bond market is currently up 5/32, which may improve this morning’s mortgage rates by approximately .125 of a discount point.
Today’s only important economic data came from the Conference Board at 10:00 AM ET. They announced their Consumer Confidence Index (CCI) rose to 90.9 in July, exceeding forecasts of85.6 and June’s revised reading of 86.4. This means that surveyed consumers were much more optimistic about their own financial and employment situations than many had thought. That makes the data negative for the bond market and mortgage rates because rising confidence usually means consumers are more apt to spend money, fueling economic growth. However, even though stocks are reacting as expected to the news, bonds don’t seem to be too concerned about the data at the moment.
We also have the first of this week’s two Treasury auctions today that may affect mortgage rates. 5-year Treasury Notes will be sold today with results being posted at 1:00 PM ET. If investor demand was strong, the broader bond market may move higher during early afternoon trading. If the move is strong enough, we may see afternoon improvements to mortgage rates. On the other hand, a lackluster interest in the sale could pressure bonds and cause some lenders to revise pricing slightly higher this afternoon.
Tomorrow has two pieces of economic data scheduled for release that are likely to influence rates. The first is the ADP Employment report 8:15 AM ET, which has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. This report tracks changes in private-sector jobs in the company’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and 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 follows a couple days later. Still, because we sometimes see a noticeable reaction to the report, it is on this week’s calendar. Analysts are expecting to see an increase of approximately 220,000 private payrolls.
Tomorrow also has the first of this week’s three extremely important reports with the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. This index is considered to be the benchmark indicator of economic growth or weakness. It is the total of all goods and services that are produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important report we get regularly. Current forecasts are estimating that the economy grew at a 3.1% annual rate during the second quarter, rebounding significantly from the first quarter’s 2.9% decline. A faster rate of growth should hurt bond prices, leading to higher mortgage rates. But a smaller than expected reading will likely fuel a bond market rally and push mortgage pricing lower since it would indicate the economy was not as strong as many had thought.
Lastly, the adjournment of the fifth FOMC meeting of the year is tomorrow afternoon. This is not a meeting that will be followed by a press conference with Fed Chair Yellen nor is it expected to yield a change to key interest rates. Theoretically, we would like to hear something in the post-meeting statement that indicates the Fed is not going to raise rates until late next year or 2016. There is a decent chance that this meeting and statement will yield no surprise and have little impact on the markets. However, it is such a key event that draws so much focus from analysts and market participants that just a slight variation in the verbiage can cause a noticeable reaction in the financial and mortgage markets. The meeting will adjourn at 2:00 PM ET, so any reaction will come during mid-afternoon hours.
Tomorrow should be quite an active day in the financial and mortgage markets due to market-moving events taking place in the morning and afternoon hours. Be prepared to see large swings in the markets and intraday revisions to mortgage rates tomorrow.