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  • Writer's pictureJenny Phung

Mortgage Market Update

This week has five monthly and quarterly economic reports scheduled for release that may influence mortgage rates, in addition to the Fed Beige Book and a couple of congressional appearances by Fed Chairman Powell. Two of the economic reports are extremely important to the financial and mortgage markets. The calendar starts off with one of the highly important reports and closes with the other.

Tomorrow has nothing of importance scheduled, the only day of the week without something. However, we are still likely to see movement in the markets and rates as a result of the continued war in Ukraine. A lot can happen between now and tomorrow’s open, but at this moment it appears that stocks are going to sell off and bonds are going to benefit. It is possible that traders are now interested because the Ukraine resilience and resistance raise the possibility of this being a prolonged crisis that can have a negative impact on the global economy. It will be interesting to see if the markets hold their current status until the U.S. trading session begins. If they do, we could start the week with an improvement to mortgage pricing tomorrow.

Activities kick-off Tuesday with the Institute for Supply Management's (ISM) manufacturing index for February at 10:00 AM ET. This index measures manufacturer sentiment and can have a pretty heavy impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a slight increase from January's 57.6. An increase means more surveyed manufacturers felt business improved during the month than last month. If we see a decline, the bond market should respond favorably since it would be a sign of economic weakness. One of the reasons this data is considered so important is the fact that it is usually the first monthly report posted that covers the preceding month. It is traditionally released on the first business day of the month, allowing for a current snapshot of conditions in the manufacturing sector.

Wednesday has an early morning economic report, a Fed event and an afternoon release that we will be watching. The first comes at 8:15 AM ET from payroll processor ADP who will announce their monthly private-sector employment prediction. Since it is not a government agency report, it isn't considered to be highly important. However, as with any employment-related data, it does draw some attention. This is especially true for this report because it is posted just a couple days before monthly employment figures are released by the government. I personally believe it is given more attention than it deserves, particularly because many rely on it to predict the monthly government figures, often without success. Still, if it shows a noticeable variance from expectations, it will likely cause movement in the markets and mortgage rates. Forecasts are calling for it to show 325,000 new private-sector payrolls.

Also Wednesday morning is when Fed Chairman Powell delivers the first day of the Fed's semi-annual testimony on the status of the economy to the House Financial Services Committee. Market participants will watch his words very closely. The Fed is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what is said during this testimony. Look for him to address inflation and the employment situation along with the impacts of the Ukraine / Russia crisis. His testimony begins at 10:00 AM ET with a prepared statement that is then followed by Q&A with committee members.

His prepared words are expected to be released prior to his actual appearance, so we could see a reaction early Wednesday morning. Wednesday’s process will be repeated again Thursday morning before the Senate Banking Committee. The first day of testimony usually causes the most volatility because the prepared statement made by the Chairman on the second day often differs little from that of the first day.

The Fed Beige Book is the afternoon release that we will be watching Wednesday. This report details economic activity throughout the country via business contacts. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during mid-afternoon trading Wednesday. It usually does not cause a major move in the markets or mortgage rates. If we see a reaction, it will come during mid-afternoon hours.

Next up is the revised Productivity Index for the 4th Quarter of last year early Thursday morning. Analysts are expecting to see an increase of 6.7% in output. Employee productivity is watched fairly closely because a higher level of output per hour is believed to mean that the economy can expand without fueling inflation. This release also includes a labor costs reading that can be quite influential if it shows a surprise. Since this data is quite aged now, it likely will have little impact on mortgage rates unless it shows a significant change.

December's Factory Orders data is set to be released late Thursday morning. This report is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength but includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month. Analysts are expecting a 0.5% rise in new orders, indicating strength in the manufacturing sector. The bond market would like to see a large decline, meaning that manufacturing activity was weaker than many had thought.

The biggest economic news of the week comes early Friday morning when one of the single most important monthly reports we see will be posted. That would be February's Employment report at 8:30 AM ET. Some of the highly relevant 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 change in earnings. Current forecasts are calling for a 0.1% improvement from January's 4.0% unemployment rate, approximately 395,000 new jobs added to the economy and a 0.5% rise in earnings. Stronger than expected readings would be bad news for bonds that may cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers should contribute to lower mortgage rates.

Overall, it is safe to assume that we will have another very active week in the markets ahead of us. We have several variables that can take centerstage at any time, including a geopolitical conflict, highly important Fed events, key economic data and so on. If still floating an interest rate and closing soon, it would be prudent to keep an eye on the markets because the volatility can appear at any time.

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