Market Commentary for the Week of the 4th of July

This holiday-shortened week brings us the release of only four pieces of relevant economic data that may influence mortgage rates, but two of them are considered to be highly important. In addition to a speech by Fed Chair Janet Yellen, we also have the Independence Day holiday at the end of the week. There is nothing of importance set for Monday, so expected stock movement to be the biggest contributor of changes in bond prices and mortgage rates.

The Institute of Supply Management (ISM) will post their manufacturing index for June late Tuesday morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. May’s reading that was posted last month came in at 55.4. A reading below 50 means that more surveyed executives felt business worsened during the month than those who felt it had improved. Analysts are expecting a reading of 55.8, indicating slight improvement in manufacturer sentiment. Good news for the bond market and mortgage rates would be a decline in the index, signaling worsening conditions in the manufacturing sector. This is one of the week’s two key reports that are watched closely because it is the first piece of data that tracks the previous month’s activity.

Wednesday has two pieces of data that may influence rates. The first is the ADP Employment report before the markets open 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 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 noticeable reaction to the report, it is on this week’s calendar.

Also Wednesday is May’s Factory Orders that is similar to the Durable Goods Orders report that was released last week. The biggest difference is that this week’s report covers both durable and non-durable goods. It usually doesn’t have as much of an impact on the bond market as the durable goods data does, but can lead to changes in mortgage pricing if it varies greatly from forecasts. Current expectations are showing a 0.4% decline in new orders from April’s levels, pointing towards slight weakness in the sector. A larger decline in orders would be considered good news for the bond market and could help lower mortgage rates slightly Wednesday.

Fed Chair Janet Yellen will be speaking late Wednesday morning at an International Monetary Fund (IMF) conference in Washington D.C. The topic of the speech is listed as monetary policy, so there is a good possibility of her words causing volatility in the markets with a decent chance of them affecting mortgage rates. She is scheduled to speak at 11:00 AM ET.

The last data of the week is arguably the single most important report we see each month. The Labor Department will post June’s unemployment rate, number of new payrolls added or lost and average hourly earnings early Thursday morning. 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, a decline in payrolls and no change in earnings. Weaker than expected readings would raise concerns about sustainable economic growth and likely help boost bond prices, lowering mortgage rates Thursday. However, stronger than expected readings could be extremely detrimental to mortgage pricing as it would help support the theory that we will see good economic growth later this year. Analysts are expecting to see the unemployment rate remain at 6.3%, with 210,000 jobs added and a 0.2% rise in earnings.

The U.S. financial and mortgage markets will be closed Friday in observance of the Independence Day holiday. They will also close early Thursday afternoon ahead of the holiday and will reopen Monday morning for regular trading hours. We could see bond traders sell some holdings before the 2:00 PM ET close to protect themselves over the holiday, which raises the possibility of seeing an upward revision to mortgage rates Thursday afternoon. This is especially true if the Employment report shows significant surprises.

Overall, I am expecting to see another fairly active week for the financial markets and mortgage rates. The most important day of the week is Thursday due to the Employment data and early closing, but Tuesday and Wednesday may also bring a noticeable move in rates. The calmest day of the four will likely be Monday unless something unexpected happens. Due to the shortened week having two major reports, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate and closing in the near future.