Mortgage rates hit their highest levels of the year on Friday, as government bonds sold off, with the yield on the benchmark 10-year treasury bond finishing the week at the highest level since September. Increased optimism over the resolution of Greece’s debt crisis drove investors to riskier assets, thus demand for government bonds decreased on Friday. Moreover, the latest domestic economic data released during the week suggested, that the U.S. economy is gaining speed in the second quarter, which bolstered speculation among investors and traders that the Federal Reserve would hike rates as soon as September.
The yield on the benchmark 10-year treasury note closed the trading session at 2.40% on Friday, which translates to an uptick of 9 basis points compared to Thursday’s level. On the other hand, the yield on the 30-year treasury note was considerably higher as well, finishing the week at 3.25% versus 3.16% a day earlier.
The two biggest events in the upcoming week’s economic calendar will take place on Tuesday and Friday. Greece is on the brink to default on a 1.6 billion euros debt payment to the IMF on Tuesday, as negotiations broke down over the weekend between the troubled country and its creditors. On Sunday, after debt negotiations have stalled, the European Central Bank said, that it will refuse to grant more emergency loans for Greek banks. Greek Prime Minister Alexis Tsipras announced that he would let Greek people decide whether to accept the latest set of bailout proposals from its creditors via a referendum which will be held on July 5. However, as the country is running out of money on Tuesday, it’s unclear how it might survive financially going forward. Tsipras also announced that Greek banks and the country’s stock exchange will remain closed on Monday, as it’s increasingly likely that the country will face a financial turmoil.
As we mentioned before, if Greece eventually defaults on its debt payment on Tuesday, it could possibly put the country on a path to exit from the Eurozone. Aside that this would potentially cause a financial collapse in the country, it could shake up global markets as well. In such an economic environment, U.S. mortgage rates could likely fall, as economic uncertainty usually drive investors to ultra-safe haven assets, like government bonds. And when yields on treasury notes drop, so are mortgage interest rates.
Greece’s debt crisis aside, the other major event in the week ahead will be release of the June U.S. Non-Farm Payrolls report on Thursday, a day earlier than usual, because of the July 4 holiday. Financial markets are looking for more evidence that the job market is on the path of steady improvement, and the upcoming Non-Farm Payrolls data is a key indicator in determining the health of the labor market. For the fresh NFP data, the consensus expectation is that the economy added 232,000 jobs in June, following a surprising jump of 280,000 last month.
If the report will come with better-than-expected figures, it could likely strengthen the Fed’s plans for hiking rates later this year. On the other hand, if the data fails to meet expectations, mortgage rates could benefit, but given the recent trend of extreme market volatility and a conservative stance from lenders when it comes to repricing, we wouldn’t hold our breath for a huge net change in interest rates.
The ADP Private Employment Report for June is going to be released a day earlier than the all-important NFP data. The June ADP private sector data is expected to show an increase of 218,000 jobs, compared with 201,000 last month.
Besides the aforementioned job market reports, the week ahead will see the release of a bunch of housing and manufacturing data. On Monday, the National Association of Realtors will publish the May Pending Home Sales report. Economists are projecting that pending home sales likely increased at a modest pace of 1.4% in May, following April’s 3.4% uptick.
Another economic data which is set for a release in the beginning of the week is the Dallas Manufacturing Survey for June. According to the latest estimations, manufacturing activity in the Dallas region likely rose to -15.5 in June from -20.8 last month.
On Tuesday, another housing report will see the light of day in the form of the S&P/Case-Shiller Home Price Index. Analysts expect an increase of 0.9% in home prices in April, or 5.5% year-over-year.
The same day we will get fresh regional manufacturing data, as the Chicago Purchasing Managers Index is scheduled for a release on Tuesday. Economists believe, that manufacturing activity in the Chicago region likely surged to 50.4 in June, compared with 46.2 in May.
Last month Americans were more optimistic about the outlook of the U.S. economy going forward, the latest Consumer Confidence Index showed. Expectations for this month Consumer Confidence Index is an increase to 97 from the previous 95.4 in May. The Conference Board’s Consumer Confidence Index for June will be released on Tuesday.
Vehicle sales likely slowed down to 2% in June to an annualized rate of 17.2 million units, following May’s 17.7 million figure, according to the latest estimations. New data on vehicle sales will see the light of day during mid-week.
With regards to the housing market, on Wednesday another fresh report will be released. Analysts believe that construction spending slowed down last month, following a 2.2% uptick in April. The general consensus is for a reading of a 0.5% increase in May.
For the upcoming ISM Manufacturing Index economists are projecting a reading of 53.1, a slightly better figure compared to May’s 52.8. This type of manufacturing data will come out on Wednesday.
Factory orders are expected to fall 0.5% in May, according to economists expectations. The data, which is scheduled for a release on Thursday, will likely reflect a 1.8% drop in durable goods orders.
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