Tuesday, May 31, 2016 - Article by: James Brooks -
By James Brooks
The bond market is down 48/32 (1.85%), which should push today's mortgage rates higher by approximately .125 of a discount point.
This morning had two pieces of economic data that are relevant to mortgage rates. The first was April's Personal Income and Outlays data at 8:30 AM ET. It revealed a 0.4% increase in income and a 1.0% jump in spending. The income reading matched forecasts but the spending exceeded already strong projections, meaning consumers spent more than thought. That makes the data bad news for bonds and mortgage rates because consumer spending makes up a significant portion of the U.S. economy and bonds tend to thrive in weaker economic conditions.
Also posted this morning but at 10:00 AM ET was May's Consumer Confidence Index (CCI). The Conference Board announced a reading of 92.6 that fell well short of the 96.2 that was predicted. It was also a decline from April's revised reading of 94.7. The decline indicates that surveyed consumers were less optimistic about their own financial situations than they were last month. Since waning confidence usually means weaker levels of consumer spending, we should consider the data favorable for mortgage rates. This news did help improve bonds since early morning trading lows, but the report does not carry the importance to erase today's negative tone in the bond market.
Tomorrow is likely going to be another active day for rates with three reports being posted. The ADP Employment report is first, set for release before the markets open. It has the potential to cause some movement in the markets if it shows much stronger or weaker numbers than expected. This report tracks changes in private-sector jobs of ADP's clients that use them for payroll processing.
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 reaction to the report, we should be watching it. Analysts are expecting it to show that 180,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
Next up, the Institute for Supply Management (ISM) will post their manufacturing index at 10:00 AM ET. This release is highly important and measures manufacturer sentiment about current business conditions. One reason why it is considered so important is the fact that it is the first piece of economic data posted every month that covers the preceding month. In other words, it is the first look into the previous month's economic conditions. That differs from many reports that aren't released until mid or late month.
A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are expecting to see a 50.4 reading in this month's release, meaning that sentiment slipped from April's 50.8. A smaller reading will be good news for the bond market and mortgage shoppers while a larger than expected increase could contribute to higher mortgage rates tomorrow.
Tomorrow's other relevant report is the Federal Reserve's Beige Book, which is named simply after the color of its cover. This report details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher tomorrow afternoon.
Overall, despite today's move and all the data coming tomorrow, Friday is still the key day of the week with regards to mortgage rate movement. However, tomorrow could also be a pretty active day for mortgage pricing also. Thursday will probably be the lightest day unless something totally unexpected happens with stocks. We have some key data being posted this week. Therefore, it would be prudent to continue to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.
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.
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