September 1st, 2009 3:57 PM by Mel Samick
Tuesday's bond market is in negative territory after this morning's primary economic release showed a much stronger than expected reading. The stock markets are showing losses with the Dow down 185 points and the Nasdaq down 40 points. The bond market is currently up 16/32.Today's big news came from the Institute for Supply Management (ISM), who posted their manufacturing index for August late this morning. They reported a reading of 52.9 that was stronger than analysts had expected, indicating manufacturer sentiment is growing. This was the first time this index was above 50 since January 2008. That is considered bad news for bonds and mortgage rates because it points towards a strengthening economy. However, a note in the report says that manufacturers are not planning on hiring new workers anytime soon. This helps support the theory that t he job market will remain weak for some time, likely preventing a rapid economic recovery. The result was a minimal impact on this morning's bond trading and mortgage rates.Tomorrow brings us three events for the markets to digest. The first is the revision to the 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. It is expected to show a downward change from the previous estimate of a 6.4% annual pace. Forecasts are currently calling for a reading of 6.1%. A larger than expected reading would be considered good news for bonds and mortgage rates.The second relevant economic report is July's Factory Orders data. This report measures manufacturing sector strength and is similar to last week's Durable Goods Orders, but includes orders for both durable and non-durable goods. This data is expected to show a 1.5% increase in new orders. A smaller than expected rise should lead to lower mortgage rates Wednesday, as long as the productivity number doesn't hurt bond prices. The third and final event tomorrow is the release of the minutes from the last FOMC meeting. There is a pretty good possibility of the markets reacting to them following their 2:00 PM ET release, especially if they show some divisiveness by its members. It will be interesting to see some of the Fed member's views on the economy and inflation and if they will hint what the Fed's next move may be. But this is one of those events that can cause significant movement in rates after its release or be a non-factor. It generally causes a little movement in bond prices but not enough to significantly affect mortgage pricing.