Mel's Blog

July 09 Market News #1

July 1st, 2009 12:08 PM by Mel Samick

Wednesday's bond market has opened in negative territory following stock gains and a little stronger than expected economic report but it has since righted itself. The stock markets are rebounding from yesterday's losses with the Dow up over 79 points and the Nasdaq up 16 points. The bond market is currently up 6/32, but we likely see little change in this morning's mortgage rates due to strength in trading late yesterday.

Today's relevant economic data came from the Institute of Supply Management (ISM), who reported that their manufacturing index for June stood at 44.8. This was higher than what analysts had forecasted, indicating that manufacturer sentiment was stronger than thought. This is considered negative news for bonds and mortgage rates because strengthening manufacturing activity means that the economy is working towards a recovery. A weak economy makes bonds more attractive and stocks less appealing to investors.

Tomorrow morning brings us the release of two reports, including the almighty Employment report. The Labor Department will post June's unemployment rate, number of new payrolls added and average hourly earnings early tomorrow. 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 large decline in payrolls and no change in earnings. Weaker than expected readings would likely help boost bond prices and lower mortgage rates tomorrow. However, stronger than expected readings could fuel a bond sell-off and be extremely detrimental to mortgage pricing. Analysts are expecting to see the unemployment rate rise 0.2% to 9.6%, while 363,000 jobs were lost and a 0.1% rise in earnings.

The Commerce Department will post May's Factory Orders data late tomorrow morning, which 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 0.8% rise in new orders from April's levels. A smaller than expected rise in orders would be considered good news for the bond market, and could help lower mortgage rates. However, the employment data is much more important to the markets than this report is.

The financial markets will be closed Friday in observance of the Independence Day holiday and will reopen Monday morning. This may lead to additional volatility tomorrow as traders prepare for and protect themselves over the long weekend. There will not be an early close in the bond market tomorrow, but I suspect that trading will be thin during afternoon hours as market participants head home for the holiday weekend.

                                Mel

Posted in:General
Posted by Mel Samick on July 1st, 2009 12:08 PM

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