Thursday’s bond market has opened flat with stocks relatively calm and today’s economic releases not drawing much attention. The major stock indexes are showing minor losses with the Dow down 19 points and the Nasdaq down 5 points. The bond market is currently up 1/32 (1.84%), which should keep this morning’s mortgage rates at yesterday’s levels.
Yesterday’s afternoon release of the Fed’s Beige Book showed weaker economic activity since the previous release. This report covered January and most of February, indicating that the economy was slowing during the first part of the year. We should consider the news favorable for bonds and mortgage rates since long-term securities such as mortgage-related bonds are more appealing to investors during weaker economic conditions. However, the news apparently didn’t surprise many traders as we saw little reaction in the bond and mortgage markets following its release.
The first of this morning’s three reports was last week’s unemployment figures that showed 278,000 new claims for unemployment benefits were filed. This was higher than the 270,000 initial claims that was expected and hints that the employment sector was a bit weaker than thought last week. This allows us to consider the data good news for mortgage rates. Unfortunately, this is only a weekly report, so its impact on today’s pricing has been minimal.
Also at 8:30 AM came the revised 4th quarter Productivity index. The revision showed that worker productivity fell 2.2% during the quarter. While the decline is not good news for bonds, it was a stronger number than what was expected. Analysts were calling for a 3.3% decline, slightly weaker than the 3.0% drop that the preliminary reading showed. In other words, the softer decline than what was expected is actually favorable news in this data. But with it also being a minor report, we have not seen a reaction to it in this morning’s trading.
January’s Factory Orders report was released at 10:00 AM ET. The Commerce Department announced a 1.6% increase in new orders for both durable and non-durable goods last month. This fell a little short of the 2.0% increase that was forecasted, meaning the manufacturing sector was not as strong as many were expecting. That makes the data good news for mortgage rates also. Although, this is not considered a highly important report either.
Tomorrow brings us some key employment data that is expected to be a market-mover. The Labor Department will release February’s Employment report at 8:30 AM ET tomorrow. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 4.9% and approximately 190,000 new jobs added to the economy. Stronger than expected readings will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers would raise concerns about the economy’s ability to continue to grow that makes another Fed rate hike at their next meeting less likely. This would have an opposite impact on the markets and mortgage pricing.