Thursday’s bond market has opened relatively flat despite favorable economic news and early stock weakness. The major stock indexes are well into negative ground with the Dow down 110 points and the Nasdaq down 29 points. The bond market is currently up only 1/32 (2.03%), but due to another round of bond gains late yesterday afternoon we should see an improvement in this morning’s mortgage rates of approximately .125 – .250 of a discount point.
Today’s first economic report was the weekly unemployment update at 8:30 AM ET. It showed that 277,000 new claims for unemployment updates were filed last week. This was an increase from the previous week’s 267,000 initial filings and higher than the 270,000 that was expected. Those numbers hint at a weakening employment sector that makes the data slightly favorable to the bond and mortgage markets.
The Institute for Supply Management (ISM) gave us today’s important data with the release of their manufacturing index for September at 10:00 AM ET. They announced a reading of 50.2 that fell short of expectations (50.6) and declined from August’s 51.1. The decline is good news for bonds and mortgage rates because it means that fewer surveyed trade executives felt business improved in September than in August. More importantly, the 50.2 is extremely close to the critical benchmark of 50.0. A reading below 50 means that more executives said business worsened in the month than those who felt it had improved. That is a recessionary sign for the manufacturing sector, which would be great news for mortgage rates. It will be interesting to see what happens with October’s reading, but for the time being the news is helping to boost bonds.
Tomorrow brings us the release of the almighty monthly Employment report. The Labor Department will post September’s employment numbers at 8:30 AM ET tomorrow. This report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings. If this report gives us weaker than expected readings, bond prices should move higher and we should see lower mortgage rates Friday. However, stronger than forecasted readings could cause a sizable spike in mortgage pricing and start another upward trend in rates. Analysts are expecting to see the unemployment rate remain at 5.1%, an increase of 205,000 new jobs from August’s level and a 0.2% increase in earnings.
The Commerce Department will post August’s Factory Orders data at 10:00 AM ET tomorrow. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods such as food and clothing. It can sometimes impact the bond market enough to change mortgage rates if it varies from forecasts by a wide margin. However, because it follows the monthly Employment report, I suspect the markets will not be focused on this report. Analysts are forecasting a decline of 1.0% in new orders, meaning manufacturing activity slowed in August. This would be good news for the bond market and mortgage pricing.