Rate Lock Advisory

Thursday, July 3rd

Thursday’s bond market has opened in negative territory following a batch of mostly unfavorable economic news. Stocks are reacting to the same data, pushing the Dow higher by 290 points and the Nasdaq up 178 points. The bond market is currently down 14/32 (4.33%), which should cause an increase in this morning’s mortgage rates of approximately .125 of a discount point.

14/32

Bonds

30 yr - 4.33%

290

Dow

41,774

178

NASDAQ

20,563

Mortgage Rate Trend

Trailing 90 Days - National Average

  • 30 Year Fixed
  • 15 Year Fixed
  • 5/1 ARM

Indexes Affecting Rate Lock

High

Negative

Employment Situation

Today’s big news was the release of June’s Employment report that was posted this morning instead of the traditional Friday release because of tomorrow’s holiday. The report indicates the employment sector is stronger than expected and again gave us reason to not rely on the monthly ADP report as a gauge. June’s report revealed the U.S. unemployment rate slipped 0.1% from May’s 4.2% when it was expected to rise to 4.3%. It also showed 147,000 new jobs were added to the economy, exceeding forecasts of 100,000 by a pretty hefty margin.

Medium

Positive

Employment Situation

The report did have a bit of good news for bonds though. Average hourly earnings rose only 0.2% last month while year-over-year they rose 3.7%. Both increases were softer than forecasts of 0.3% and 3.8% respectively. Bonds tend to be more sensitive to the earnings data than stocks, but the other headline numbers are too strong for these readings to offset the negative reaction.

Medium

Negative

Fed Talk

Overall, this data points to a strengthening employment sector, not weakness. It likely all but eliminates the possibility of the Fed cutting key rates at their FOMC meeting at the end of this month. The Fed’s two mandates are to control inflation and help maximize employment. This is why we often hear Fed speakers reference the employment sector and inflation. The fact employment is clearly not crumbling at this point undermines the theory that the Fed needs to start cutting short-term rates to support the sector. It more or less buys them more time to see how tariffs and other policies will affect inflation. Making a move now that is intended to boost economic growth when employment activity is stable runs the risk of fueling higher inflation in the future. Therefore, it is highly unlikely they will make a move at this month’s meeting, opting for at least September’s FOMC meeting before acting. Unfortunately, that probably will contribute to higher mortgage rates this summer.

Medium

Negative

Weekly Unemployment Claims (every Thursday)

Last week’s unemployment update also gave us a sign of a stronger employment sector by showing 233,000 new claims for jobless benefits were made during the week. Analysts were expecting to see an increase from the previous week’s revised 237,000, not a lower number. Rising claims are a sign of weakness in the sector, so good news for rates would have been an increase in new filings.

Medium

Negative

Factory Orders

The third economic release of the morning was May's Factory Orders report at 10:00 AM ET. The Census Bureau announced an 8.2% increase in new orders at U.S. factories for durable and non-durable goods. Despite being a sizable jump, it wasn’t far from the 8.0% that was predicted. It is a sign of strength in the manufacturing sector, but was expected due to the large decline in April’s orders. In other words, this report has had almost no impact on this morning’s mortgage rates.

Medium

Negative

ISM Service Index

This week’s final piece of data was June’s service index from the Institute for Supply Management (ISM). They announced a reading of 50.8 that was higher than May’s 49.9 and forecasts of 50.5. The increase means more surveyed service sector business executives felt business conditions improved last month than did in May. More importantly, it moved back above the important threshold of 50.5 that signals growth in the sector. As a sign of strength in the economy, this report is also bad news for bonds and mortgage rates.

Low

Unknown

Holiday Schedule

The bond market will close at 2:00 PM ET today ahead of tomorrow’s Independence Day holiday and will reopen for regular trading Monday. Stocks will close at 1:00 PM and also be closed tomorrow. These holiday hours sometimes create pressure in the bond market as traders look to protect themselves while the U.S. markets are closed for the extended weekend. This may lead to another small increase in mortgage pricing later today.

---

Unknown

None

Since the markets are closed tomorrow and no relevant economic reports are being released, there will not be an update to this report until Sunday evening’s weekly preview. We would like to take this opportunity to wish you a safe and wonderful holiday weekend!

Float / Lock Recommendation

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.