This holiday-shortened week brings us only four economic reports that are expected to affect the markets and mortgage rates but two of them are considered to be highly important. It is a shortened week with the markets closing for the Independence Day holiday Thursday. Those two particular reports make this a very important week for mortgage rates.
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 52.1. 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 51.5, 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.
Tuesday has nothing of importance but Wednesday has a couple. June's ADP Employment report will be posted at 8:15 AM ET Wednesday. 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 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 145,000 new payrolls. Ideally, the bond market would prefer to see a much smaller increase.
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 report. However, it 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.
The stock and bond markets will close early Wednesday afternoon ahead of Thursday’s Independence Day holiday and will reopen for regular trading Friday morning. The pre-holiday early close sometimes creates pressure in the bond market as traders look to protect themselves while U.S. markets are closed. That usually is more of a concern when it involves a weekend that has the markets closed for 3 ½ days, but it is something to watch for this week because we will get a key piece of data when the markets reopen Friday morning.
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 3.6%, with 160,000 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 with nothing set for release. This is likely going to be a pretty 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.