Austin Mortgage Blog

Posts Tagged ‘Employment Report’

Weak Economic Growth Helps Austin Mortgage Rates

After dropping to the lowest level in decades last week, Austin mortgage rates fell even further this week. Weak economic data from the United States, China and Europe caused investors to question the pace of the global economic recovery. Slower economic growth was positive for Austin mortgage rates and negative for the U.S. stock market.

Friday’s important Employment report reflected a slowly improving labor market. The economy lost -125K jobs in June, which was very close to expectations. The figures include a loss of -225K census workers who completed their temporary assignments. The private sector added 83K jobs. The Unemployment Rate fell to 9.5% from 9.7% in May, but this was due to 650K people leaving the labor force. The labor force consists of everyone in the US who either has a job or is looking for one, and the Unemployment Rate measures the percentage of the labor force without jobs.

There was mixed news in the housing sector this week. May Pending Home Sales declined 30% from April, as many buyers rushed to sign contracts ahead of the April 30 deadline to qualify for the homebuyer tax credit. On a more positive note, the “close-by” deadline for the homebuyer tax credit has been extended to September 30. Although the tax credit is not available for new contracts signed after April 30, extremely low Austin mortgage rates and high home affordability levels make conditions very favorable for home purchases.

Austin borrowers are advised to lock in their Austin mortgage interest rates and step aside as we’re not sure whether the light in the tunnel is the end or a train

Weekly Unemployment Claims hit the tape plus 13K this morning while Continuing Claims jumped 43K to 4.62 million.  The rise canceled out last week’s drop and brings the 4 week moving average to 466K.  Not the type of print that notates a recovery in jobs.  Pending Home Sales didn’t do us any favors, falling 30%.  This level was last visited in May of 2009 and in our opinion, represents much more than losing the 8K tax credit program.  Construction Spending completed the bearish economic trifecta, falling .2% as private spending did the damage, down .5% month on month.

In the glass half full category, Ford, Chrysler, and GM all posted sales gains as that sector starts to stabilize.  Currently, stocks are off 61 points on the big board, 10 year note is plus 8/32’s, and mortgage backs are off 2 to 5/32’s, depending on the interest rate.  As I have talked about in the past, money flows are coming out of foreign sovereign debt and into treasuries.  Trouble is, that’s as far as the money goes.  Risk/reward is moving more and more towards risk in MBS, corporate paper, and anything other than an instrument backed by the full faith of Uncle Sam.  With stocks trading firmly below 1040 on the S&P chart, investors are net bearish, looking for a pull back to 940/970.  That would clip the Dow for 1 large.  Add to it the uncertainty of tomorrow’s Employment Report and all you see is traders with a fist full of scared money.

Speaking of the jobs number, the call is for job losses of 100K.  We’ll preview the report later today.  Given what we know, we see the pull back in mortgage paper (higher Austin mortgage rates,  lower pricing) as nothing more than consolidation, expecting that it will not become a major reversal.  However, we are seeing a divergence set up on the daily chart, telling you that a least a pause is in order until tomorrow’s fireworks begin (7:30 am cst).

With risk reward not in your favor, Austin borrowers are advised to lock in their Austin mortgage interest rates and step aside as we’re not sure whether the light in the tunnel is the end or a train.

Let me try to explain what happened yesterday when stocks traveled to the down 1000 point abyss

Before we get into the Employment Report, let me try to explain what happened yesterday when stocks traveled to the down 1000 point abyss. On the NYSE we have circuit breakers, a system that is on individual stocks to slow down trading for 30 to 90 seconds, letting bid and offer imbalances catch up. This makes for a “true valued” market, not one that is lop sided.  With technology today, we have what’s called “high frequency traders”, those that trade in nano seconds, seeking the best price no matter if you’re selling or buying.  These computers do not slow down if an exchange activates a circuit breaker, instead trading “through” or “around” the exchange, finding another regional exchange that will handle the order.  For a period of about 15 minutes, that’s what happened as sell orders pushed circuit breakers and then traded around the exchange.  To give you an example, Proctor and Gamble traded at $56.00 when the NYSE circuit breaker kicked in.  Sell orders were still streaming with high frequency traders traveling to another exchange to get orders sold for their customers or portfolios.  They got filled “away” at $39.00 yet the stock never traded below $56.00 on the NYSE.  One that’s better than that happened with Accenture’s stock.  When the same thing happened and the circuit breaker slowed trading on the stock at $40.00, the high flyers when over, under, around and through with trades getting filled as low as 1 cent.  Not a good day if you were the seller.  Both the Naz and NYSE are in the process of canceling trades that were outside of 60% (from their low end circuit breaker value).  Let’s just call this crazy and needs to get fixed.

The Employment Report did not disappoint, posting a plus 290K jobs with the unemployment rate at 9.9%. Services and Manufacturing sectors had gains of 166K and 44K respectfully.  Even construction added 14K.  Consensus workers (temp positions) rose 66K.  Back month revisions (higher) were also posted for February and March.  Overall, the economy has gained over 500K new jobs in 2 months. If not for the situation in Greece/Euro-zone, this would have been a “Katie bar the door” game changer for bonds, notes, and mortgage backs.  Nonetheless, both stocks and bonds have been quite volatile this morning, trading in a wide swinging range.  Currently, stocks are off 125 on the big board (range down 185 to up 20).  Mortgage backs have been down as much as 15/32’s to down 4/32’s.

The roller coaster will continue to be in play as Germany’s Parliament just passed the bailout package for Greece.  France approved the package yesterday.  Markets like this are dangerous as fear makes a strange trading bedfellow.  Overall, once Greece becomes a back burner issue (and it will), the focus will be on our economy which is starting to turn the corner.  That will inevitably lead to higher Austin mortgage rates.  Not that much higher but just the same, not the levels you are seeing now.  Borrowers are smart to lock their Austin mortgage rates NOW.

Employment report over 250K should give stocks a lift and punish our pricing for about .25 to .50. Anything less than 50K would hold Austin mortgage rates steady and probably put another whippin’ on stocks

If you happened to catch the stock market trade, you just witnessed one of historic proportions.  At one time the big board was down 990 points.  Reports and rumors are flying around with the best one being that some trader pulled a “fat finger move”, one that was to enter a sell of 1000 shares but came across as 1000000.  Hard to tell as traders are a different breed and not bashful with what they think they know.  Stocks have recovered, now down 390 on the Dow.  Who would have thought that down 390 would be a good thing.  Let’s talk about tomorrow’s Employment Report.  Street consensus goes like this;

1)      Nonfarm Payroll – Plus 200K

2)      Unemployment Rate – 9.7%

3)      Average Hourly Earnings – Plus .1

4)      Average Workweek – 34.1

Given the data we have, standard deviation mathematics, regression analytics, and the Ouija board, we’re comfortable with the 200K number or just slightly less (say 190K).  The unpredictability here comes from the weather related rebound and the number of census worker hired, both hard to handicap.  The household survey points to a much stronger number, up 264K while the ADP estimates out yesterday point to plus 32K.  That spread is big enough to drive a truck through.  Manufacturing and Construction will also be a key with expectations that both are showing signs of improvement.  Strength in the Philly Fed Survey, Empire State Survey and IMF Manufacturing data gave us that tip.  Construction jobs took a beating with the cold weather so more spring like temperatures should show a little pent up demand and hiring in the sector.  Private sector jobs look to be flat to slightly improved and temporary jobs are still increasing, albeit at a slower pace that seen in the first quarter.  So, we’ll place our bet on plus 190K Nonfarm payrolls, 9.6% unemployment rate, and Average Hourly Earnings and Average Workweek to come in on the consensus screws.  What are others saying;

1)      JP Morgan – Plus 145K and 9.7%

2)      Credit Suisse – Plus 165K and 9.6%

3)      RBS – Plus 185K and 9.7%

4)      Wells Fargo – Plus 200K and 9.7%

5)      Barclays – Plus 200K and 9.6%

Expected reaction to an as advertised report should favor stocks and bother bonds.  Reason being is that it would mark two consecutive months of job creation with a “getting better all the time” feel.  We still need to get to 250K just to break even given attrition.  Over 250K should give stocks a lift and punish our pricing for about .25 to .50.  Anything less than 50K would hold Austin mortgage rates steady and probably put another whippin’ on stocks.  With all that is moving markets these days, only the almighty know where we’ll be this time tomorrow.  Best bet for borrowers is to lock your interest rate NOW and buckle up!  Should be a wild ride.

The trend is changing and even though we don’t like it, a “new normal” for Austin mortgage rates is in the works

The morning after continues towards the path of least resistance, that being higher yields and worsening Austin mortgage pricing.  Certainly the economic fundamentals of a recovering economy, continiously evolving fiscal policy which we feel is more borrowing and less monetary stimulus, and a reluctance of our foreign partners to take on our debt/risk are the heavy weights in this move to higher yields.

In this current enviornment, markets are more complex than ever and the flow of money with it’s associated risk can be powerful and detrimental.  The trend is changing and even though we don’t like it, a “new normal” for Austin mortgage rates is in the works.

The large channel dating back to last year, which gave us a series of lower highs and lower lows in yield has now been breached.  Phase two was the triangle formation that was trapped between 3.29% and 3.81%, winding itself tighter and tighter headed for a breakout.  That breakout happened yesterday and if you remember our comments a couple of weeks ago, our bias carried a high probability of that breakout leading to higher yields.  Wished we were wrong.

Damage done, it’s time to move on and get back to business.  Earlier today, Weekly Unemployment Claims fell 14K to 422K.  Continuing Claims also fell.  Both are not indicative of a trend but a better reflection of improving weather across the country and government consensus hiring.  Bill Gross, often refered to as the “bond god”, is talking about how he’s bearish on bonds and feels that stocks are a better buy.  He also commented that he expects to see the 1 year TBill rate at 1.25% to 1.50% within a year.  Today’s rate is .41%.

Currently, the 10 year note is off 14/32’s (yield 3.87%), mortgage backs are off 16/32’s, and stocks are on fire, up 100 points on the big board.   With the upward trend gaining momentum, the 10 year note is on a clear path towards 4.0% plus.  Best case on any rebound/reflex rally is back to 3.75%/3.77%.

We all know why the trend is higher but here’s some of the factors that could stop the selling and improve Austin mortgage pricing:

• One would be a good 7 year note auction today (12:00 cst).
• Two is month-end buying by hedge funds and money managers to extend duration.
• Three being weaker than expected Employment Report next week.  The market is looking for a gain of 200K.

Markets like this are very dangerous.  They can travel to higher yields beyond where you think they can.  They can stay over sold for long periods of time.  The bottom will not be put in until the last person sells.  On the bright side, markets do not go down forever, it just feels like it.  Hang in there.

Using one standard deviation and a dart board, our bias is for 100k in job losses and a 9.9% unemployment rate

Let’s see what we have to deal with today; Sovereign debt problems in Greece continue to hold Euro zone hostage, massive short in our mortgage backed securities paper has traders scrambling, economic news such as Productivity, Factory Orders, Unemployment Claims, and Pending Home Sales, Treasury auction supply coming next week, and tomorrow’s weather skewed Employment Report due out at 7:30 am cst.  Just another day at the salt mine.

Weekly Unemployment Claims fell 27K to 469K as seasonal factors and the weather related snafu has everyone guessing is this real or Memorex.  The big picture points to the percentage of eligible people receiving unemployment benefits being 3.5%, well above the reading that creates jobs.  Seems to us that unemployment is stabilizing albeit at higher levels.  Not the makings of a vibrant economy.

Pending Home Sales looked like a Rottweiler as well, falling 7.6% in January.  Economists were looking for a plus 1.0% print.  Once again, the NAR Chief Lawrence Yun blames the weather for affecting home shopping.  Maybe we’ll get a clear read in July.  For the record, all regions were in the red with the West falling 13.2%.  Did it snow in California?

Factory Orders were up 1.7% with the ex-transportation up .1%.  A 15% gain in transportation orders did this trick for this number.  Maybe new accelerator parts for Toyota.  Productivity gains were off the chart, rising 6.9%.  The flip side was a drop in labor costs of 5.9%.  We are putting computers to work, not Joe the Plumber.  All of the above has flattened the yield curve with the 10 year note up 4/32’s and the bond plus 13/32’s.

One positive here is that until we work through this massive off sides market position in MBS, mortgage pricing will be supported, helping to keep pricing stable.  I’m going to give you our best guess on tomorrow’s jobs data.

Expectations for the February Employment Report are as follows;

1)      Non-Farm Payrolls – Minus 50K

2)      Unemployment – Rate 9.8%

3)      Hourly Earning – Plus .2 month on month

4)      Average Work Week – Minus .2

As we have been talking about, the weather is going to make a mess of the numbers.  We expect continued job losses in manufacturing, construction, and private services payrolls.  Construction should be hit the hardest, probably losing another 50K.  Consensus workers are a wild card as the government is expected to ramp up hiring, adding 1.2 million short term workers over time.

Using one standard deviation and a dart board, our bias is for 100k in job losses and a 9.9% unemployment rate.  JPMorgan has the call at minus 90K and 9.9%, Barclays at Minus 75K and 9.8%, Wells Fargo at minus 80k and 9.7%, and Credit Suisse the outlier at minus 125K and 9.9%.  If there is a miss, it will be towards more job losses than less.  You may recall that I wrote about John Ryding call that job losses would be minus 250K.  Don’t know if he is right but I do know he’s a pretty sharp dude.  What will the market do?  Most likely blow the numbers off due to distortions in the weather but trade nonetheless in a volatile fashion.  Once the dust settles, we would expect that pricing will be close to today’s levels “unless” the number is below expectations.

Let’s say we see a -25K or unchanged print.  We feel the market would interpret that to be much better than expected once you factor in the weather distortion.  Really, this one is a crap shoot.  Technically, we’re not getting much help as the 10 year note chart has formed a triangle pattern on the daily time frame.  We would need to close below 3.45% to turn this into a raging  bull (currently 3.61%) so not much help there.  Triangle patterns typically wind themselves up, tighter and tighter before a break out occurs.  Given the distance in basis points for a bullish outcome, we would side with a break out to higher yields/ worsening mortgage pricing to coincide with the ending of the short squeeze in the MBS market.  To put this in English and cut to the chase, be careful out in the days ahead.

With the consensus call for job losses of 50K, a number of economists are talking about 100K in losses with John Ryding, chief economist at RDQ Economics, calling for losses of 250K

No news today but lots to talk about.  The market dipped at the open on higher European Stocks and the Euro zone working with Greece to save its soul.   Take a look at mortgage delinquencies, up 21% year on year.  The FDIC asset backed sale is somewhat of a puzzle.  Seems as though the timing is poor.  Fed President Hoenig is making hawkish comments that the Fed should not guarantee markets with an extended period of low rates – zero rates are not sustainable and extended low rates may cause problems later.  At the same time, he is sounding like a dove, commenting  that he is very worried about unemployment and the long term position of the U.S. economy, deficits, and excess reserves.

Speaking of unemployment, Friday’s number could be as weird as it gets.  With the consensus call for job losses of 50K, a number of economists are talking about 100K in losses with John Ryding, chief economist at RDQ Economics, calling for losses of 250K.  Blame it on the weather.  With spreads so wide you could drive a truck through them, Friday’s print will be one volatile ride.  After being down as much as 7/32’s this morning. Mortgage backs have crept back a few 32’s.  Stocks have been up 30 to 40 points most of the day and the 10 year note now trades at 3.62%.  Honestly, most markets are as quiet as a church mouse! Call it neutral, treading water until the next headline breaks.

If our bias is correct, you should see mortgage pricing hold steady to improve, watching to see if stocks can find their sea legs

With so much going on this week, I’d like to give you the “fast and furious” version for today’s jobs report.

Market Consensus:

1. Nonfarm Payrolls – Minus 5K
2. Unemployment Rate – 10.1%
3. Average Hourly Earnings – Plus .2%
4. Average Work Week – 33.2 Hours (unless you are in Mortgage Banking)

One of the difficulties with handicapping today’s report is that of revisions.  Seasonal revisions, benchmark revisions, and workweek revisions (now all workers rather than production and nonsupervisory) will present themselves and need to be accounted for.  A trend towards stability in Manufacturing, even if it is primarily inventory rebuild, is also in the mix.  Some are calling for an improvement in construction jobs due to milder January weather but I’m not sure exactly where they live.  Texas has been nothing but cold and rainy.

Street talk is looking for the government sector to prop up jobs with more consensus workers hired and on and on.  Seems to us like the “Street” is trying to talk itself into a bullish jobs number, one that could see growth of 20K to 30K.  Matter of fact, Barclays is calling for a net job creation of 25K jobs.  We see this report as not so rosy.

Given the recent uptick in Weekly Claims (used in the household survey), the ADP call for job losses of 22K, and our view that the labor market is losing jobs as fast as they are creating them leads us to the following “guess”:

1. Nonfarm Payrolls – Minus 30K
2. Unemployment Rate – 10.2%
3. Average Hourly and Average Workweek to be spot on with consensus.

Given that the “Street” is looking for better than expected numbers, that reality would once again put a top in our market and produce higher yields, worsening mortgage pricing post release.  We do feel that any selling will be shallow as the global doom and gloom will be with us for some time to come.  Stocks would benefit and maybe just in time to save that market from a much bigger correction.  If our bias is correct, you should see mortgage pricing hold steady to improve, watching to see if stocks can find their sea legs.

From a pure chart play, we would advise locking in your Austin mortgage rate

Oh what a tangled web we weave.  Talking about the ongoing wave of debt concerns in the Euro Zone.  Lithuania joined the debt woes of Spain, Greece, and Portugal, forcing the ECB to have Plan B ready.  That being a stimulus package if all of the above cannot raise capital and pay their bills.

The concerns hit equity markets across the pond like a brick, spilling over to stateside trading right from our opening bell.  Currently, stocks are off 200 on the big board as the macro concerns keep on comin’.  Bond and mortgage back traders have a tactical bias to sell strength into tomorrow’s payroll numbers but seem to be caught between a rock and a hard place as the above mentioned has caused a flight to quality in U.S. fixed income products.

Currently, the 10 year note is up 18/32’s (yield 3.63%) with mortgage backs up a smooth 8/32’s.  Mortgage pricing is better by .25% and the always volatile Employment Report for January is out tomorrow at 7:30 am cst.  More on our “employment guess” this afternoon.

Earlier today, Weekly Jobless claims rose 8K, much more than the expected drop of 10K.  With seasonal factors in the rear view mirror, the numbers seem to be leveling off at the high end of the range.  Disappointing indeed.  Preliminary Q4 Productivity jumped 6.2%, in line with most economists expectations.  The number is all about growth in output versus hours works.  Good for corporate profitability, bad for jobs.  We’ll complete the economic hat trick with Factory Orders crossing the tape plus 1%.  Most of the gain can be attributed to inventory rebuilding yet a positive sign came by way of Durable Goods, up for the first time in three months.  Technically, yesterday’s selling in 10 year notes took the contract to support but held within the current range.  That weakness did not accelerate any sell signals but does tell us that sellers are gaining the advantage.  As I mentioned above, they are frustrated with macro events just the same.

Looking a little deeper, we see slow stochastics bullish but stalling and Elliot Wave counts pointing to a top and correction since printing a yield of 3.59%.  From a pure chart play, we would advise locking in your Austin mortgage rate.  Trouble with that advice is stocks and all the global heartburn can put the chart on its head.  Tough one to handicap.  Given the high profile jobs number tomorrow, it’s best to be a live dog than a dead lion when it comes to your Austin mortgage rate!

The week ahead will be loaded with first tier data including everything from Construction Spending, Housing numbers, and the Employment Report for January

The lack of month end buying and rebounding stocks has pinched treasury and mortgage pricing this morning.  10 year notes are off 12/32’s (yield 3.65%), mortgage backs off 6/32’s, and stocks are up 85 on the big board.  The week ahead will be loaded with first tier data including everything from Construction Spending, Housing numbers, and the Employment Report for January.

Earlier today, Personal Income/Spending hit the tape plus .4% and plus .2%, slightly better than economists had predicted yet not anything to write home about.  Construction Spending was another story, falling 1.2% versus the minus .5% many were looking for.  Cold weather and competition from a heavy inventory of distressed/foreclosure sales has done the trick once again.

The ISM Index (Manufacturing) surprised to the upside, putting it its best number since August 2004 (plus 3.5 points to 58.4).  Digging deeper into the numbers, most of the gains came from new orders as inventories need to be rebuilt.  The question now becomes, will buyers step up to take the newly produced goods off the shelf?  Time will tell.

President Obama’s projected budget sets a new record deficit (1.516 trillion in 2010) as the new budget looks to be 3.8 trillion.  Bailout costs for FNMA and FHLMC alone will be 153 billion.  Wow.

Technically, note, bond, and MBS structure are in neutral as follow through to the upside (rally) is not in the cards.  Bulls need the 8 day moving average (currently we’re sitting on it) at 3.65% to hold.  We expect that area to hang in there into tomorrow.  Traders will then make a move, one way or the other, on Wednesday and Thursday to hedge positions up for Friday’s Employment Report.  Tough one to handicap as predictions on Nonfarm Payrolls and the Unemployment Rate are all over the map.  Cautiously optimistic is the best we can come up with.