Wednesday’s bond market has opened in negative territory again. The stock markets are showing sizable gains with the Dow up 146 points and the Nasdaq up 35 points. The bond market is currently down 16/32 (2.32%), which should push this morning’s mortgage rates higher again by approximately .375 of a discount point if comparing to Tuesday’s early pricing.
This morning’s only relevant economic news was May’s ADP Employment report that showed 201,000 new private-sector payrolls. This does not include government jobs and nearly pegged forecasts of 200,000. Therefore, we can consider the data neutral for mortgage rates, maybe slightly negative because many in the industry were hoping for a weaker number. Either way, this report didn’t have a significant impact on this morning’s trading or mortgage pricing. The continued overall negative tone was evident before the report was posted at 8:15 AM ET.
The Federal Reserve’s Beige Book will be released at 2:00 PM ET this afternoon and does carry enough importance to affect mortgage rates. It details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop this afternoon. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher later today.
Tomorrow has two pieces of data scheduled for release, but neither are considered highly important or significant enough to derail this downward spiral in bonds. The first is the revised 1st Quarter Productivity and Costs data at 8:30 AM ET. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. Many analysts believe that the economy can grow with low inflationary pressures when productivity is high. Last month’s preliminary reading revealed a 1.9% decline in productivity and a 5.0% increase in labor costs. Tomorrow’s update is predicted to show that productivity fell at a 2.9% annual rate while labor costs rose 5.9%. I don’t think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from expectations. Stronger productivity and weaker labor costs would be considered favorable for bonds and mortgage rates.
Last week’s unemployment numbers will also be released at 8:30 AM ET tomorrow. They are expected to show that 280,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s 282,000 initial claims. Rising initial claims indicates employment sector weakness, so the higher the number the better the news it is for bonds and mortgage rates. Although, because this is only a weekly snapshot, it usually does not cause much movement in mortgage pricing unless it shows a huge variance from forecasts.