This holiday-shortened week brings us the release of five pieces of relevant economic data that may influence mortgage rates, but two of them are considered to be highly important. We also have the Greece financial drama coming to a climax with Tuesday’s deadline for an agreement looking unattainable at this point. In addition, the Independence Day holiday will alter our trading hours at the end of the week. There is nothing of importance set for tomorrow, so expect Greek headlines to be the biggest contributor of changes in bond prices and mortgage rates.
June's Consumer Confidence Index (CCI) will start the week’s economic calendar late Tuesday morning. This data is relevant to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial and employment situations, they are more apt to make large purchases in the near future, fueling economic growth. If it shows a sizable increase in confidence from last month, we can expect to see a negative reaction in bonds and mortgage rates. Current forecasts are calling for a reading of 97.5, up from last month's 95.4 reading. The lower the reading, the better the news it is for bonds and mortgage rates.
Wednesday has two pieces of data that will likely affect rates. The first is the ADP Employment report before the markets open 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 of the company's clients that use them for payroll processing. 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 very 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 this week's calendar. It is expected to show 220,000 new payrolls. Ideally, the bond market would prefer to see a much smaller increase.
The Institute of Supply Management (ISM) will post their manufacturing index for June at 10:00 AM ET Wednesday morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. May's reading that was posted last month came in at 52.8. A reading above 50 means that more surveyed executives felt business improved during the month than those who felt it had worsened. Analysts are expecting a reading of 53.2, indicating slight improvement in manufacturer sentiment. Good news for the bond market and mortgage rates would be a decline in the index, signaling worsening conditions in the manufacturing sector. This is one of the week's two key reports that are watched closely because it is the first piece of data that tracks the previous month's activity.
Thursday has the final two pieces of economic data. The Labor Department will post June's unemployment rate, number of new payrolls added or lost and average hourly earnings at 8:30 Am ET Thursday morning. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The best scenario for the bond market is rising unemployment, a decline in payrolls and no change in earnings. Weaker than expected readings would raise concerns about sustainable economic growth and likely help boost bond prices, lowering mortgage rates Thursday. However, stronger than expected readings could be extremely detrimental to mortgage pricing as it would help support the theory that the weakness we saw earlier this year is well behind us. Analysts are expecting to see the unemployment rate slip from 5.5% to 5.4% with 230,000 jobs added and a 0.2% rise in earnings.
May's Factory Orders that is similar to the Durable Goods Orders report that was released last week will be posted at 10:00 AM ET Thursday. The biggest difference is that this week's report covers both durable and non-durable goods. It usually doesn't have as much of an impact on the bond market as the durable goods data does, but can lead to changes in mortgage pricing if it varies greatly from forecasts. Current expectations are showing a 0.2% increase in new orders from April's level, pointing towards slight strength in the sector. A decline in orders would be considered good news for the bond market, but because it follows the almighty Employment report I suspect this data will have little impact on mortgage rates.
The U.S. financial and mortgage markets will be closed Friday in observance of the Independence Day holiday. The bond market will also close early Thursday afternoon ahead of the holiday and will reopen Monday morning for regular trading hours. We could see bond traders sell some holdings before the 2:00 PM ET close to protect themselves over the holiday, which raises the possibility of seeing an upward revision to mortgage rates Thursday afternoon. This is especially true if the Employment report shows significant surprises.
Overall, I am expecting to see another active week for the financial markets and mortgage rates. The most important day of the week is Thursday due to the Employment data and early closing, but tomorrow and Tuesday are going to be quite interesting as the Greece issue plays out. We should see a large move in rates tomorrow due to the breakdown this weekend. The fact that a Greek default on their debt is looking more likely is actually good news for our bonds because the fallout from it and Greece leaving the Euro currency is expected to have economic consequences in the region.