AM Market Update

 

Wednesday’s bond market has opened well in negative territory, erasing yesterday’s afternoon gains. The stock markets are mixed with the Dow down 58 points and the Nasdaq up 9 points.

Today’s only economic news remotely worth watching was ADP’s monthly employment update for December. The payroll processor’s release early this morning pointed to an estimate of 238,000 private-sector jobs added to the economy last month, exceeding forecasts of 203,000. That raises concern in the bond market about this Friday’s government-released Employment report. The higher the number of new jobs indicates economic strength that hurts bond prices and leads to higher mortgage rates. The problem with this data is that there historically is no real correlation to the monthly Labor Department report. In other words, we can’t rely on the ADP report to accurately reflect what the more important government compiled report will show a few days later. In just the past six months, the government non-farm private sector payroll number has varied from the ADP report by as little as 1% and as much as 100%. And the ADP number does not include government jobs that are included in the overall non-farm payroll number that is widely used to gauge employment sector strength. Still, we are seeing a negative reaction in this morning’s early trading, which can easily be erased if Friday’s report does not show similar results.

We also have the first of this week’s two Treasury auctions today that have a good possibility of affecting mortgage rates. 10-year Notes are being sold today while 30-year Bonds will be auctioned tomorrow. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If the sale was met with a strong demand from investors, we should see the bond market move higher during afternoon trading. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling after results are posted at 1:00 PM ET. The selling in bonds would result in afternoon upward revisions to mortgage rates.

The minutes from the last FOMC meeting will be posted mid-afternoon today. They will give market participants insight to the Fed's thinking and concerns regarding the economy, inflation and monetary policy. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what the minutes show. They will be released at 2:00 PM ET, so they won't affect the markets or mortgage rates until afternoon hours. I don't suspect this particular set of minutes will cause too much concern or excitement because the last FOMC meeting was followed by revised Fed forecasts and a press conference by Chairman Bernanke. Although, the meeting did yield the first reduction in the Fed’s current bond buying program (QE3). Therefore, analysts will be looking for any tidbits that could help predict when the next reduction will be made.

Tomorrow’s only relevant economic news is the weekly unemployment update from the Labor Department. They are expected to announce that 338,000 new claims for unemployment benefits were filed last week. This would be just a slight change from the previous week’s 339,000. The higher the number of new filings, the better the news it is for the bond market and mortgage rates since rising claims indicate a softening employment sector. However, it is worth noting though, that because this data tracks only a single week’s worth of initial claims, it usually takes a wide variance from forecasts for the data to affect mortgage rates.

 

At this point if you have not already locked your rate then there is little reason to do so as tomorrow report will probably not have much of an impact. Floating your rate until next week may be a better option. Follow my blog for up to date information on the real estate and mortgage markets.