Todays Commentary

Updated on July 27, 2017 10:34:20 AM EDT
Thursday’s bond market has opened in negative territory, giving back some of yesterday’s late gains. Stocks are showing gains again with the Dow up 69 points and the Nasdaq up 28 points. The bond market is currently down 8/32 (2.32%), but due to post-FOMC strength yesterday afternoon, we should still see a slight improvement in rates if comparing to Wednesday’s morning pricing. If your lender improved pricing yesterday afternoon, you should see a small increase in this morning’s rates.

There were two pieces of economic data posted early this morning, one of which is considered to be pretty important to the markets. That was June's Durable Goods Orders at 8:30 AM. The Commerce Department announced a jump of 6.5% in new orders for big-ticket products such as airplanes, appliances and electronics. This was much larger than the 2.9% increase that was expected, making the headline number appear to be bad news for bonds and mortgage rates. While the spike in new orders is not favorable by any means, a secondary reading that excludes more costly and volatile airplane and transportation-related orders paints a different picture. The ex-transportation reading came in at up 0.2% when forecasts were calling for a 0.5% rise. In other words, the main headline number does not look good for mortgage pricing, but the more stable secondary reading does.

The second release of the morning was last week's unemployment figures, also at 8:30 AM ET. They showed that 244,000 new claims for unemployment benefits were filed last week, up from the previous week’s revised 234,000 initial claims. That makes the data good news for bonds and mortgage rates. Unfortunately though, this is only a weekly snapshot and did not have much of an impact on this morning’s trading.

We do have one afternoon event to watch today. We will get the results of the today’s 7-year Treasury Note auction at 1:00 PM ET. If the sale was met with a good demand, like yesterday’s 5-year Note sale was, we may see strength in bonds this afternoon. A lackluster demand for the securities could lead to bond weakness and a slight increase in mortgage pricing.

Tomorrow has three economic reports for the markets to digest, including the highly important preliminary reading of the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. This index is considered to be the benchmark indicator of economic growth or weakness. It is the total of all goods and services that are produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important report we get regularly. Current forecasts are estimating that the economy grew at a 2.8% annual rate during the second quarter, rebounding from the first quarter's 1.4% annual rate. A stronger rate of growth should hurt bond prices, leading to higher mortgage rates Friday. But a much smaller than expected reading will likely fuel a bond market rally and push mortgage pricing lower since it would indicate the economy was not as strong as many had thought.

Also at 8:30 AM will be the 2nd Quarter Employment Cost Index (ECI) that tracks employer costs for wages and benefits. This release will give us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would be bad news for bonds and mortgage shoppers. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.6%.

The week's calendar closes with July's University of Michigan Index of Consumer Sentiment just before 10:00 AM ET tomorrow that will help us measure consumer optimism about their own financial situations. This data is considered relevant because rising consumer confidence usually translates into higher levels of spending that adds fuel to economic growth that makes bonds less appealing to investors. Friday's release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 93.1, I think the markets will probably shrug off this news.


 ©Mortgage Commentary 2017
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