May 1st, 2009 12:55 PM by Lehel Szucs
Thursday's bond market has opened in negative territory following another round of stock gains. The stock markets are continuing yesterday's rally with the Dow up 102 points and the Nasdaq up 37 points. The bond market is currently down 12/32, which will likely push this morning's mortgage rates higher by approximately .250 of a discount point over yesterday's morning rates.
The Labor Department gave us today's first economic report with the release of the 1st Quarter Employment Cost Index (ECI). It tracks employer costs for wages and benefits, showing a 0.3% increase during the quarter. This was lower than forecasts, which is good news for bonds, and was the lowest increase on record. However, the data seems to be ignored by traders this morning.
March's Personal Income & Outlays also showed weaker than expected results. It revealed a 0.3% decline in income and a 0.2% drop in spending. Both of these readings were a little weaker than analysts h ad expected, so the data can be considered favorable to bonds also. But this morning's stock gains have made it difficult for bonds to move higher.
The Labor Department also said that 631,000 new claims for unemployment benefits were filed last week. This was lower than forecasts, but since this data tracks only a week's worth of claims, it has had little impact on this morning's trading or mortgage rates.
There are three reports scheduled for release late tomorrow morning. The first is the University of Michigan's update to their Index of Consumer Sentiment for April. This report gives us an indication of consumer sentiment. I don't expect it to have a significant impact on bonds and mortgage pricing unless it varies greatly from forecasts. Current forecasts are calling for a small downward revision to 61.5.
The second is March's Factory Orders data at 10:00AM. This is a moderately important release because it measures manufacturing sector strength. It is similar to last week's Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report usually has more of an impact on the financial markets than the Factory Orders report does. Still, a larger decline than the 0.7% that is expected could push mortgage rates slightly lower, while a smaller drop will likely lead to higher rates. But, the third report of the morning is the most important and will likely be the biggest influence on bond trading tomorrow.
The Institute for Supply Management (ISM) will post their manufacturing index late tomorrow morning also. This is one of the first important economic reports released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that mo re surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. But, if we see a drop from last month's reading of 36.3, the bond market should thrive and mortgage rates will probably fall. It is expected to show a reading of 38.0.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock 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.
©Mortgage Commentary 2009