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Monday, August 03, 2020

Market Commentary

Updated on August 3, 2020 10:38:17 AM EDT

We had a highly important economic report kick off this week’s calendar late this morning with the release of the Institute for Supply Management’s (ISM) manufacturing index. They announced a reading of 54.2 that was higher than forecasts and an increase from June’s 52.6. This means that surveyed manufacturing executives felt better about business conditions last month than they did in June. Because that is a sign of economic strength, the reading was bad news for bonds and mortgage rates.

The rest of the week has only three additional monthly economic reports scheduled for release, but one of them is considered extremely important to the markets. Tomorrow has a moderately important release with Junes Factory Orders data scheduled for 10:00 AM ET. It will give us another snapshot of manufacturing sector strength by tracking orders for both durable and non-durable goods. This report is similar to last weeks Durable Goods Orders report that tracked orders for big-ticket items only. Since a significant portion of the data was released last week, this report likely will not have a big impact on the markets. Analysts are expecting to see a rise in new orders of approximately 5.2%. A much smaller than expected increase would be considered good news for bonds and mortgage pricing, but it will take a large variance from forecasts for this report to noticeably influence mortgage rates.

Overall, Friday is the key day of the week for mortgage rates due to the monthly Employment report. Tomorrow is the best candidate for calmest day unless something unexpected happens. The benchmark 10-year Treasury Note yield set a new low closing level last week, breaking the previous benchmark of 0.54%. If the move lower continues this week, we could see mortgage rates improve since they tend to track bond yields. On the other hand, a move back above 0.54% that holds, could be a sign that an upward trend in rates is starting. Considering the importance of some of this week’s data and the fact the 10-year yield is at a pivotal point, it would be prudent to keep a close eye on the markets if floating an interest rate and closing in the near future.

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