The Institute for Supply Management (ISM) gave us today’s only
relevant economic data with the release of their August manufacturing index
late this morning. They announced a reading of 55.7 that was higher than the
53.6 that was expected and an increase from July’s reading of 55.4. This was
also the highest reading since June 2011, indicating manufacturing sector
growth. That makes the data negative for the bond market and mortgage rates,
especially since analysts were expecting to see a decline in manufacturer
sentiment.
There are five more economic reports scheduled for release this
week, one of which is not only arguably the most important monthly report we
see but also is expected to be highly influential on the Fed’s decision of
whether or not to start the tapering of their bond buying program later this
month. The markets were closed yesterday due to the Labor Day holiday and over
the long weekend we had a couple things happen that are affecting this
morning’s trading. The most significant was President Obama’s decision to delay
dealing with the Syria crisis until Congress can be involved next week. The
flight to the safety of bonds that we saw last week when it appeared military
action could take place at any time now appears to have unwound for the time
being. In other words, the funds that were shifted into bonds last week to
escape the stock volatility that usually comes when turmoil involves military
action have now been moved back out of bonds as the crisis temporarily calms
down. That doesn’t mean that we won’t see a repeat of last week’s move if the
U.S. does take action against the Syrian government. This is an issue that may
remain on the sideline the next couple days. However, there is a strong
likelihood of it affecting the markets and mortgage rates again in the very
near future.
Tomorrow has two reports scheduled for release. The first is
likely to have little impact on the markets and mortgage rates. That is July's
Goods and Services Trade Balance data 8:30 AM ET tomorrow. This report will
give us the size of the U.S. trade deficit and is expected to show a deficit of
approximately $38.2 billion, which would be an increase from June's $34.2
billion. However, I would consider this the least important of this week's
events, meaning it will likely have little impact on tomorrow’s bond trading or
mortgage rates unless it varies greatly from forecasts.
The day’s second release will come from the Federal Reserve, who
will post its Beige Book report at 2:00 PM ET. This report details current
economic conditions in the U.S. by Federal Reserve regions. It is believed to
be a key source of data when the Fed meets for their FOMC meetings and is
usually released approximately two weeks prior to each meeting. If it reveals
any significant surprises or changes from the previous release, we may see
movement in the markets and mortgage pricing as analysts adjust their theories
on the Fed's next move when they meet September 17-18.
Overall, this is likely to be a highly active week for the
financial markets and mortgage pricing. Friday is the key day with the
Employment report but as we are seeing this morning, today’s report carried
some significance also. We also need to watch the Syria crisis as it could
cause ripples in the world markets and here at any time. Since Congress isn’t
scheduled to be back in session to take up the matter until next week, it may
not have much of an impact on this week’s trading. However, if they do come
back to session this week to address it, the markets will be focused on it
also. Therefore, with so much scheduled and the potential for even more, I
strongly recommend maintaining contact with your mortgage professional if still
floating an interest rate and closing in the near future.
I strongly suggest to lock at this point and take advantage of
any reduction in rate with our float down policy.
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