Posts Tagged → Jobs Report
Happy Cinco De Mayo!
Treasuries and mortgage markets better again this morning with the stock market weaker. Crude oil, gold, silver and other commodities lower as the commodity bubble continues to burst. At 8:30 more bad news for the economy, weekly jobless claims were expected to have declined 29K they increased 43K to 474K, the biggest increase since Aug 2010. Continuing claims increased to 3.733 mil frm 3.659 mil. The 4 wk average now at 431,250; 400K is considered pivotal by many analysts, not sure why other than its an easy rounded number. A huge shock to markets with many still professing economic improvement; that view has been shaken badly in the past week and is turning markets around quickly. Although the headline hit hard there were some seasonal factors that may have exaggerated the increase; a spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge.
Q1 preliminary productivity increased 1.6% a little better than expected (+1.0%) but weaker than Q4 2010 at 2.6%. Q1 unit labor costs were up 1.0% a tad higher than thought (+0.8%), costs in Q4 were down 0.6%.
Crude oil last Friday traded at $114.00, this morning $106.00; gold last Friday $1560.00, now $1504.00, silver, copper and other commodities all reversing after months of increased prices. Markets seem to go from one bubble to the next, the commodity bubble being the latest and now bursting.
The Bank of England kept its benchmark interest rate at a record low (0.5%) as signs the recovery is losing momentum kept a majority of policy makers focused on stimulating growth during the government’s fiscal squeeze.
Jean-Claude Trichet, ECB chief left interest rates unchanged after recent increases to fight off inflation. He said the bank will monitor upside inflation risks “very closely,” suggesting it may wait until after June to raise interest rates again. “It is essential that recent price developments do not give rise to broad-based inflationary pressures,” Trichet commented after leaving rates unchanged at 1.25%. Central banks in the Philippines and Malaysia today raised interest rates, and India this week increased its borrowing costs for the ninth time since March 2010. Rates in China, may rise further after its central bank said yesterday that taming inflation is its top priority.
The bond and mortgage markets are better this morning but have already slipped back from their best levels at 9:00 after the data at 8:30. The 10 hit 3.17% at 9:00, at 9:30 3.19%; mortgage prices at 9:00 +8/32 (.25 bp), at 9:30 +4/32 (.12 bp). The technical’s are in overbought levels on the momentum oscillators and relative strength index, the potential of some consolidation exists now. At 9:30 the DJIA opened -51, as long as the indexes are weaker the bond and mortgage markets should hold gains; any recovery in equities with bond mkt overbought will likely pressure prices in mortgages. The wider perspective remains positive, however at present low yields we wonder how much lower rates can fall.
Nothing left today in terms of scheduled news; the rest of the day will be guided by the equity market trading. Tomorrow the April employment report which now is expected to show less job growth than was expected earlier this week after the ADP report yesterday and the increase in weekly claims last week and this week although today’s claims are not part of the data gathered for tomorrow’s report.
Thursday Update
Prior to 8:30 this morning the 10 yr note traded slightly better with stock index futures weaker. At 8:30 weekly jobless claims were expected to have increased 3K but jumped 27K back above 400K to 412K; continuing claims however declined from 3.73 mil to 3.68 mil. The 4 wk average increased 5K. Also at 8:30 March producer price index was expected up 1.0%, as reported up 0.7%, the core excluding food and energy was expected up 0.2% but increased 0.3%. Yr/yr overall PPI +5.8% while the yr/yr core +1.9%, up 0.1% frm Feb.
The 10 yr note fell below 3.50% yesterday to 3.46% breaking the near term resistance, this morning after the 8:30 data the rate fell to 3.43% and mortgage prices at 8:45 +4/32 (.12 bp). The 10 yr technicals looking better after two weeks of selling and increasing rates. The stock index futures were pushed lower on the data this morning, at 8:45 the DJIA off 47. As long as equity markets stay weak the bond and mortgage markets will do better.
Obama’s call for raising taxes by focusing on spending in the tax code was immediately rejected by top Republicans, signaling that any effort to increase the government’s take from the economy would be difficult to move through Congress. What a surprise! Obama said he wanted Congress to overhaul the tax code by lowering rates, eliminating tax breaks and generating more money than the current system does. The plan would allow tax cuts affecting high-income taxpayers to expire at the end of 2012 and would raise $1T on top of that. As noted yesterday, the budget battle is hardly beginning. That said, the Presidents speech was overall a good one, well framing the issues but the chasm between those wanting more government and less is wider than the Grand Canyon. Obama set a June deadline for a bipartisan deal to cut the federal deficit and offered a path to get there that was designed to contrast with a Republican proposal he called unfair to the elderly and overly generous to the wealthy; it won’t likely be achieved though.
Crude oil, after hitting $113.00 last Friday is slightly lower this morning and has fallen to $107.00. Oil inventory levels were higher than traders expected when data was released yesterday. The decline in the price is mostly speculators heavily leveraged being forced out, but they will be back.
At 9:30 the DJIA opened down 50 points, the 10 yr off its best levels earlier, up 3/32 at 3.45% after touching 3.43%. Mortgage prices at 9:30 +2/32 (.06 bp) also falling back from levels at 9:00.
At 1:00 this afternoon Treasury will auction $13B of 30 yr bonds; yesterday’s 10 yr auction was OK but not strong bidding.
While the bond and mortgage markets have improved in the last few days, and the 210 yr note took out its near resistance at 3.50%, the 10 has a very critical resistance at 3.40%. Breaking the 3.40% level will need a continuing decline in US equities which doesn’t appear likely although recent selling in stock markets has increased concerns and shaken the strong optimism that has captured investors.
Tying Friday’s Jobs Report To Rising Mortgage Rates
Conforming and FHA mortgage rates have improved over the last 10 days, but that could all change this Friday with the release of February’s Non-Farm Payrolls report.
Non-Farm Payrolls is the official name of the government’s monthly jobs report and, given the fragile state of the U.S. economy, Wall Street will be watching it closely.
Mortgage rates could spike come Friday morning.
Jobs are an important part of the nation’s recovery. Among other concerns, unemployed Americans don’t spend as much money on goods and services, and are more likely to default on a mortgage. This retards economic growth and increases the potential for foreclosures.
When jobs numbers worsen, therefore, it follows that economic projections worsen, too.
Poor employment figures draw money away from the stock markets and into less-risky bond markets, including mortgage-backed bonds. Mortgage rates improve as a result. Conversely, when jobs numbers improve, stock markets gain and bond markets worsen.
Analysts expect that a net 30,000 jobs were lost in February.
The Bureau of Labor Statistics press release hits at 8:30 A.M. ET, roughly an hour before Friday’s mortgage pricing will be available to consumers. If you’re worried about rates rising on the heels of a strong jobs report, therefore, be sure to get your rate lock in today instead. Once Friday gets here, it may be too late.