Tuesday’s bond market has opened well in positive territory due to overseas economic concerns and weaker than expected data here also. The stock markets are in selling mode following weak results in some key economic data from China. That has the Dow down 309 points and the Nasdaq down 67 points. The bond market is currently up 10/32 (2.18%), but due to weakness late yesterday we should still see an increase of approximately .125 of a discount point in this morning’s mortgage rates.
Today’s only relevant economic data came late this morning when the Institute for Supply Management (ISM) posted their August manufacturing index. It showed a reading of 51.1 that fell short of the 52.6 that was forecasted and is its lowest level since May 2013. This means that surveyed manufacturers felt business was softer in August than July. It is also worth mentioning that August’s reading was a big step closer to the 50.0 benchmark that is considered recessionary. Accordingly, next month’s version will draw even more attention that this report usually does.
Tomorrow will be another active day for the financial and mortgage markets with four events set that are expected to influence bond trading and mortgage pricing. The first is the ADP Employment report before the markets open. This report 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. I don’t have much faith in the data but the markets do react to it, so we watch it. It is expected to show 203,000 new private-sector jobs were added last month.
The second is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. Forecasts are currently calling for a 1.5% upward revision, meaning productivity was better than previously thought from April through June. This would technically be good news for the bond market and mortgage rates, but this data is considered to be only moderately important to the markets. Therefore, it will take a sizable variance from 2.8% for this report to affect mortgage rates. Favorable news would be a larger increase in productivity.
The third report of the day will come from the Commerce Department, who will post July’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. It can impact the bond market enough to change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting an increase of 0.9% in new orders, meaning manufacturing activity strengthened last month. This would be bad news for the bond market and mortgage pricing, but I believe we will need to see a large decline for this report to create a noticeable improvement in rates.
In addition to those reports, the Federal Reserve will release its Beige Book report at 2:00 PM ET tomorrow. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of data when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the previous release, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed’s likelihood of raising short-term interest rates when they meet September 16 and 17.