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Thursday, July 29, 2021

Market Commentary

Updated on July 29, 2021 10:02:53 AM EDT

Today’s major economic release was the preliminary 2nd Quarter Gross Domestic Product (GDP) reading at 8:30 AM ET. It revealed the economy grew at an annual rate of 6.5% during the April through June months, falling well short of the 8.2% that was expected. The readings means the economy was not nearly as strong as many had thought last quarter. Because weaker economic conditions make long-term securities, such as mortgage bonds, more appealing to investors, we can consider the data to be very good news for mortgage rates.

Last week’s unemployment figures were also posted early this morning, revealing 400,000 new claims for benefits were filed during the week. This was a decline from the previous week’s revised 424,000 initial filings, but higher than forecasts. Declining claims is a sign of strength in the employment sector. However, the fact they came in higher than expected offsets the decline. Accordingly, we are labeling the release as neutral for rates.

There is a 7-year Treasury Note auction taking place today that may have a slight impact on mortgage pricing this afternoon. Results of the sale will be posted at 1:00 PM ET. If they show there was strong demand from investors, we could see bonds improve and possibly get a minor improvement to rates. Assuming there is a reaction in the bond market, it will come during early afternoon hours.

Tomorrow brings us the release of three pieces of economic data that traders will be watching. Junes Personal Income and Outlays data at 8:30 AM ET is the first. This data helps us measure consumer ability to spend and current spending habits. Forecasts are calling for a decline of 0.6% in income and a 0.7% rise in spending. It also includes the Feds preferred inflation gauge (PCE Index), which is expected to show a 0.5% increase from May. Stronger readings indicate economic growth. Therefore, smaller increases will be considered good news for mortgage pricing.

Also early tomorrow will be the 2nd Quarter Employment Cost Index (ECI) that tracks employer costs for wages and benefits. This release will give us a measurement of wage-inflation that makes long-term securities, such as mortgage bonds, less attractive to investors. If it shows a large increase, we may see inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.9%.

Julys revised University of Michigan Index of Consumer Sentiment will be posted late tomorrow morning, closing out this week’s calendar. This is another consumer optimism reading about their own financial situations. This data is considered relevant because rising consumer confidence usually translates into higher levels of spending that adds fuel to economic growth that makes bonds less appealing to investors. Tomorrows release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 80.8 the markets will probably shrug off this data.

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