October 1st, 2009 9:34 AM by Lehel Szucs
Thursday's bond market has opened in positive following early stock losses and mixed economic news. The stocks markets are in selling mode this morning with the Dow down 153 points and the Nasdaq down 52 points. The bond market is currently up 22/32, which should improve this morning's mortgage rates by approximately .125 - .250 of a discount point.
The first of today's two important economic reports was August's Personal Income and Outlays that revealed a 0.2% increase in personal income and a 1.3% rise in spending. Both of these readings were higher than expected, indicating that consumers had more money to spend than thought and were spending it. This is bad news for bonds and mortgage rates because it hints that consumer spending will help fuel economic growth.
It was the second report of the day that gave us favorable news for bonds. The Institute for Supply Management (ISM) said that their manufacturing index slipped from 52.9 in August t o 52.6 last month. This means that fewer surveyed trade executives felt business improved than was expected. Analysts had forecasted an increase in the index, meaning manufacturer sentiment was not as strong as thought. This is good news since it indicates a weaker than expected manufacturing sector.
The Labor Department said that 551,000 new claims for unemployment benefits were filed last week, exceeding forecasts of 535,000. While this data is not considered to be highly important because it covers only a week's worth of claims, it could mean that tomorrow's major employment figures could come in weaker than expected.
Tomorrow morning brings us the release of the almighty Employment report for September. This report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be very 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, falling payrolls and a drop in earnings. Analysts are expecting to see the unemployment rate at 9.8%, a decline in new payrolls of approximately 180,000 and a 0.2% increase in earnings. Stronger than expected reading will likely drive mortgage rates higher, but if they show weaker than forecasted figures bonds should rally, pushing mortgage rates lower.
The Commerce Department will post August's Factory Orders data late tomorrow morning. This manufacturing sector report is similar to last week's Durable Goods Orders release, but includes orders for non-durable goods. It can usually impact the financial markets enough to change mortgage rates slightly if it varies from forecasts by a wide margin, but due to the importance of the Employment report I doubt this data will heavily influence the markets. Current forecasts are calling for an increase in new orders of approximately 0.5%.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
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