This holiday-shortened week brings us five economic reports and other events expected to affect the markets and mortgage rates with two of them considered to be highly important. It is a shortened week with the markets closing early tomorrow and remaining closed Tuesday for the Independence Day holiday. Despite the early holiday, the week starts off with one of those two major economic releases.
The Institute of Supply Management (ISM) will post their manufacturing index for June at 10:00 AM ET tomorrow 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 54.9. 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 55.0, 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 a very important report and is watched closely because it is the first piece of data that tracks the previous month's activity.
The Commerce Department will post May's Factory Orders data late Wednesday morning, which is similar to the Durable Goods Orders report that was released last week. 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 because it measures manufacturing sector strength. Current expectations are showing a 0.5% decline in new orders from April's levels. A larger decline in orders would be considered good news for the bond market and could help lower mortgage rates slightly Wednesday.
Also Wednesday, the minutes from the last FOMC meeting will be released during afternoon trading. There is a possibility of the markets reacting to them following their 2:00 PM ET release. I don't believe that they will reveal anything surprising from the last FOMC meeting. Still, market participants will be looking for any indication of when the Fed will make their next rate increase that is currently expected sometime this year. The minutes will tell us how members voted for related motions and could cause more volatility in the markets if there is anything unexpected in them.
Thursday's only monthly report will be released before the markets open. June's ADP Employment report will be posted at 8:15 AM ET. It 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 185,000 new payrolls. Ideally, the bond market would prefer to see a much smaller increase.
The last data of the week is arguably the single most important report we see each month. The Labor Department will post June's unemployment rate, number of new payrolls added or lost and average hourly earnings early Friday morning. These are considered to be extremely important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, a large decline in payrolls and no change in earnings. Weaker than expected readings would likely help boost bond prices and lower mortgage rates Friday. However, stronger than expected readings could be extremely detrimental to mortgage pricing. Analysts are expecting to see the unemployment rate remain at 4.3%, with 173,000 jobs added and a 0.3% rise in earnings.
Overall, Friday is the most important day of the week due to the Employment report, but tomorrow is likely to be active for mortgage rates also with the ISM being posted and an early close in the bond market. The early closing often creates additional volatility as traders look to protect themselves over the holiday. I don’t see a good choice for the calmest day because we have relevant releases scheduled each day. This is likely going to be another highly active week for mortgage rates.