Updated on August 29, 2017 10:51:28 AM EDT
Yesterday’s 5-year Treasury Note auction went fairly well with a couple of benchmarks showing a decent level of investor interest. The bond market reacted positively but not enough for broad rate improvements from lenders. However, it does allow us to be optimistic about today’s 7-year Note auction. Results will be posted at 1:00 PM ET, so if there is a reaction to today’s sale it will come during early afternoon trading.
Today’s sole piece of economic data was August’s Consumer Confidence Index (CCI) at 10:00 AM ET. The Conference Board announced a reading 122.9 that exceeded forecasts of 120.3 and higher than July’s revised 120.0. Analysts were expecting to see a decline, meaning surveyed consumers were more optimistic about their own financial situations than many had thought. That is negative for bonds and mortgage rates because rising confidence usually translates into stronger levels of consumer spending that fuels economic growth.
What is fueling this morning’s bonds gains has nothing to do with economic data. It is North Korea’s action yesterday (firing a missile over Japan) and the rising tensions that are expected to follow. This is a flight to safety move where bonds look more appealing to investors because of the geopolitical uncertainty. While these moves are favorable in the short-term, we should remain cautious as they can easily be reversed once the crisis that caused it subsides.
Tomorrow has two relevant reports that we will be watching, starting with the ADP Employment report before the markets open. This release has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. It tracks changes in private-sector jobs of the companys clients that use them for payroll processing. I dont have much faith in the data but the markets do react to it, so we watch it. It is expected to show 180,000 new private-sector jobs were added last month. A higher number would be negative news for mortgage rates while a much smaller than expected increase would be favorable.
The second release of the day will be the first revision to the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. This reading is the second of three that we see each quarter. Last months preliminary reading revealed that the economy grew at an annual rate of 2.6%. Tomorrows revision is expected to show that the GDP actually rose 2.8%, meaning the economy was a bit stronger than previously thought from April through June. A smaller than expected reading should help lower mortgage rates, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates since traders will be more interested in the current quarters activity.
©Mortgage Commentary 2017