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  • Writer's pictureJenny Phung

Mortgage Market Update

Updated: Jan 11, 2021

This week brings us the release of only four monthly economic reports that are relevant to the bond market and mortgage rates but most of what is scheduled is considered to be very important. In addition to the data, we also will get the minutes from last month's FOMC meeting and there are also a couple of political events taking place this week that will draw plenty of attention. The week begins light with nothing of importance set for release tomorrow.

Activities start late Tuesday morning with the Institute for Supply Management’s (ISM) manufacturing index for December. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had softened. That indicates manufacturing sector growth rather than contraction. Analysts are currently expecting to see a 56.5 reading in this month's release, meaning that sentiment weakened last month since November's reading stood at 57.5. A smaller reading will be good news for the bond market and mortgage shoppers, while a higher reading would point towards sector strength and lead to higher mortgage rates Tuesday morning.

The second release of the week will be the ADP Employment report before the markets open Wednesday. It tracks changes in private-sector jobs, using the company'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 too accurate in predicting results of the monthly government report that follows a couple days later. Still, because we sometimes see a noticeable reaction to the report, it is on our calendar. Forecasts are calling for an increase of 140,000 new payrolls. Good news for mortgage rates would be a much smaller number of payrolls.

November's Factory Orders data is next, set for at 10:00 AM ET Wednesday. This report is similar to the Durable Goods Orders release that came the week before last except it includes orders for both durable and non-durable goods. It is expected to show a 0.6% increase from October's level, hinting at manufacturing strength. A decline would be good news for the bond market and mortgage rates while a stronger than expected rise could lead to slightly higher rates.

The minutes from last month's FOMC meeting will be released Wednesday afternoon. They will give market participants insight to the Fed's thinking and concerns regarding the pandemic and its impact on the economy along with inflation and the employment situation. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what they show. They will be released at 2:00 PM ET, so they won't affect the markets or mortgage rates until mid-afternoon hours Wednesday. The last FOMC meeting was followed by revised Fed forecasts and a press conference by Fed Chairman Powell, so the possibility of seeing something unexpected is somewhat minimal. Market participants will be looking for any tidbits about what the Fed may do next with interest rates and their balance sheet or bond buying program.

The biggest economic news of the week will come at 8:30 AM Friday when the Labor Department posts December's employment figures. The Employment report is arguably the single most important monthly release we see. It gives us the national unemployment rate, the number of jobs added or lost during the month and average hourly earnings, which is a key measure of wage inflation. Rising unemployment, a decline in payrolls and flat earnings would be ideal news for the bond market. Current forecasts call for no change in the unemployment rate of 6.7% while 110,000 new jobs added to the economy and an increase in earnings of 0.2%. If we see weaker than expected results, the bond market should rally and stocks should fall, improving mortgage rates noticeably Friday. However, stronger than expected readings will likely raise optimism about the economic recovery, pushing stocks and mortgage rates higher.

In addition to the week’s economic reports, we also have Tuesday’s Georgia Senate election results and Wednesday’s congressional presidential election certification to watch. The Senate runoff is more likely to affect the markets than the election certification Wednesday. There are mixed theories about how the markets will react if both Democrats win Tuesday, turning control of the Senate over to the Democratic Party. One theory says stocks will react positively because that party will then control both chambers of Congress and the White House, meaning further economic stimulus is highly likely in the immediate future. The additional stimulus would help boost economic activity, making it good news for stocks that will likely hurt bond prices and push mortgage rates higher.

On the other hand, that same control also makes it a near guarantee that President Trump’s corporate tax breaks will be reversed, hurting corporate profits. Weaker profits generally lead to stocks moving lower and funds moving into bonds. Because rates tend to track bond yields, this scenario would be favorable for mortgage rates. However, there is no clear consensus of what will happen if either of those events take place. Accordingly, there is a decent chance of seeing some volatility in the markets midweek as the election events conclude.

Overall, Friday is the most important day of the week for rates due to the significance of the Employment report, but Tuesday’s Senate election and ISM report can also heavily influence trading. The election results won’t come into play until Wednesday morning though. There is an extremely high possibility of seeing mortgage rates make noticeable moves multiple days this week. Therefore, it would be prudent to watch the markets closely if still floating an interest rate and closing in the near future.

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