Why Wednesday, Thursday, and Friday Should Be Wild Days For Mortgage Rates This Week

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The last Fed meeting just finished up, but markets are already looking ahead to the next one, a two-day affair October 30-31.

If you'll remember, in the immediate aftermath of the Fed's announcement to lower the Fed Funds Rate by 0.500%, mortgage bonds were the hit of the party and everybody wanted to dance.  Rates on mortgages plunged immediately, despite the corresponding decline in the dollar pushing the value of the underlying bonds lower. 

It didn't really make sense at the time but, then again, markets don't always make sense or behave rationally.

The following morning, the markets woke up with a hangover. 

Immediately (if not sooner), traders undid everything from the day before.  Mortgage bonds gave up their gains and then some, starting a trend that moved mortgage rates to their highest levels in a month. 

Crash test dummies don't get whipsawed this hard.

True to form, the markets are ignoring last week's housing data because it's largely irrelevant and the players are instead focusing on jobs data.  This week, there are three jobs-related data points against which mortgage rates may move.

1. Wednesday's ADP Employment Report: Payroll company ADP releases its companion to the Bureau of Labor Statistics' monthly jobs report.  The ADP survey is rarely even close to the jobs report figures but still manages to spook investors.  "What if this time they get it?"  It's kind of like my Phillies -- once every 100 years, they're going to win the World Series.  Could this be the year?  ADP generates a lot of "whisper numbers" about what Friday's payroll data will look like.
2. Thursday's Initial Jobless Claims: A measure of how many Americans are filing for unemployment for the first time.  The lower the number (presumably), the higher the amount of jobs created.  Jobless claims have been trending lower over the past month.
3. Friday's Non-Farm Payrolls Report: Bureau of Labor Statistics releases the most important jobs data of the month, a survey showing the number of new jobs created in the month of September.  More employed Americans translates into more spending, stronger economic growth and potential inflation.  That is why strength in jobs tends to push mortgage rates higher -- inflation is the enemy of mortgage bonds.

Mortgage rates should idle today and tomorrow and then will react strongly to the ADP report.  If ADP shows strength versus the 100,000 jobs expected in Friday's report, mortgage rates should increase.