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This Week’s Market Commentary

February 3rd, 2014

Mortgage Market CommentaryThis week brings us the release of five monthly or quarterly economic reports that are likely to influence mortgage rates. The week opens and closes with key reports for the markets to digest and in between is some moderately important data. With relevant data scheduled four of five days though, we should see another active week for mortgage rates.

The first report comes late Monday morning when the Institute of Supply Management (ISM) posts their manufacturing index for January. This index tracks manufacturer sentiment by rating surveyed trade executives’ opinions of business conditions. It is usually the first economic data released each month and is one of the very important reports we get monthly. Current forecasts are calling for a reading in the neighborhood of 56.3, which would be a decline from December’s reading of 57.0. The lower the reading, the better the news for the bond market and mortgage rates because weak sentiment indicates a slowing manufacturing sector.

December’s Factory Orders data is scheduled to be posted at 10:00 AM ET Tuesday. It is similar to last week’s Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month, however, it can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 1.7% decline in new orders, indicating a softening manufacturing sector. The bond market would like to see a larger decline, meaning that manufacturing activity was weaker than many had thought.

Wednesday is the only day of the week without a report that is clearly worth watching. The ADP Employment report is set for release early Wednesday morning, which has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. This report tracks changes in private-sector jobs of the company’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and also, as we saw last month, is not a true reflection of the broader employment picture. It also is not accurate in predicting results of the monthly government report that usually follows a couple days later. Still, because we saw a noticeable reaction to the report last month, I am adding it to this week’s calendar.

Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If the productivity reading varies greatly from analysts’ forecasts of a 2.4% increase, we may see some movement in mortgage rates. Higher levels of worker productivity is good news for the bond market because it allows the economy to expand while keeping inflation subdued. Also worth noting is the labor cost reading that bond traders would prefer to see decline in to limit wage inflation concerns.

The least important report of the week is December’s Goods and Services Trade Balance data, also early Thursday morning. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to directly affect mortgage rates. It is expected to show a $36 billion trade deficit, up from November’s $34.3 billion.

Friday has the big news of the week. The Labor Department will release the almighty Employment report for January at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 6.7% and approximately 175,000 new jobs added to the economy. Stronger than expected readings will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers would raise concerns about the strength of economy and would likely lead to a sizable improvement in mortgage pricing.

Overall, Friday is the best candidate for most important day of the week although we could see plenty of movement in the markets and mortgage rates Monday also. The calmest day will probably be Wednesday unless the ADP report takes headlines with a surprisingly weak or strong payroll number, causing a knee-jerk reaction in the financial and mortgage markets. I am fully expecting to see a very active week for mortgage rates, so please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.

First Capital

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