Mortgage Market Update
There are five monthly or quarterly economic reports scheduled for release this week, two of which are considered to be highly important. There is one report set for each day, meaning mortgage rates should be fairly active throughout week.
The week’s activities start tomorrow when the Institute for Supply Management (ISM) posts their manufacturing index for April at 10:00 AM ET tomorrow. This is usually the first important economic report released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. Analysts are expecting to see a reading of 65.3, up from March's 64.7. Bond traders would prefer to see a decline from March's level, which would signal the manufacturing sector weakened during the month. The lower the reading, the better the news it is for mortgage rates.
February's Factory Orders is set for release at 10:00 AM ET Tuesday morning. This data is similar to the Durable Goods Orders report that was posted last week, except it includes orders for both durable and non-durable goods. It will also give us a measurement of manufacturing sector strength but is considered to be only moderately important to the bond and mortgage markets. That is partly because a big portion of the data was already released with the Durable Goods Orders report. The report will likely have a minimal impact on Tuesday's mortgage rates, even if it shows a weaker than expected 0.7% increase in orders.
The ADP Employment report is set for release early Wednesday morning, 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, using ADP's clients that use them for payroll processing as a base. 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 accurate in predicting results of the monthly government report that follows a couple days later. Still, because we do often see a reaction to the report, we should be watching it. Analysts are expecting it to show that approximately 810,000 private sector payrolls were added back to the economy last month.
1st Quarter Productivity and Costs data is set for release at 8:30 AM ET Thursday. This information helps us measure employee productivity in the workplace. High levels of productivity help allow low-inflationary economic growth. This update will likely be a non-factor for rates though unless it shows a significant variance from forecasts. Productivity is expected to have risen 5.0% while labor costs fell 1.6%.
The biggest economic news of the week will come early Friday morning when the Labor Department posts April's Employment report, revealing the U.S. unemployment rate, the number of jobs lost during the month and earnings data. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate fell 0.2% to 5.8% and that approximately 1 million jobs were recovered during the month while earnings slipped 0.1%. A higher unemployment rate and a much smaller increase in the payroll number would be good news for bonds and rates because it would indicate weaker than thought conditions in the employment sector of the economy. Bond traders will also be closely watching the earnings figure. Stronger than expected results will probably boost stocks and lead to bond selling, possibly causing an increase in mortgage pricing.
Overall, Friday is the most important day for rates due to the significance the Employment report carries. Tomorrow should also be an active day for rates following the ISM release. The calmest day could be Tuesday or Thursday. Bonds have been in a fairly wide trading range recently with the benchmark 10-year Treasury Note yield closing at 1.63% Friday. This is above a key resistance point of 1.62% but well below the 1.76% that seemed to be the ceiling a few weeks ago. Watch for 1.62% to be broken lower. If it does, we should see mortgage rates move lower shortly after. However, failing to do so could be a sign that yields and mortgage rates may be moving higher in the immediate future. Accordingly, please be attentive to the markets if still floating an interest rate and closing soon.