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 Tuesday and remaining closed Wednesday for the Independence Day holiday.
It starts with a major release tomorrow when the Institute of Supply Management (ISM) will post their manufacturing index for June at 10:00 AM ET. This index measures manufacturer sentiment by surveying trade executives on current business conditions. May's reading that was posted last month came in at 58.7. 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 58.5, indicating slightly weaker manufacturer sentiment. Good news for the bond market and mortgage rates would be a large 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 Tuesday 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, 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 0.2% 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 Tuesday.
Thursday's only relevant 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 predicts changes in private-sector jobs, using of 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 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 180,000 new payrolls. Ideally, the bond market would prefer to see a much smaller increase.
Also Thursday, 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. Market participants will be looking for any indication of when the Fed will make their next rate increase and how many more moves they will make before the end of the year. The minutes will tell us how members voted for related motions and could cause some volatility in the markets if there is anything unexpected in them.
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 3.8%, with 190,000 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. The calmest day could be Tuesday, partly because there will be an early close in the stocks and bond markets. The early closing sometimes creates additional volatility as traders look to protect themselves over the holiday, although there is no significant data coming the day of nor the morning after the markets reopen Thursday. Therefore, I don’t see this early close affecting rates. This is likely going to be a highly active week for mortgage rates. Therefore, it is strongly recommended that you maintain contact with your mortgage professional if closing in the near future and still floating an interest rate.