Private sector jobs led the way, adding 154K to post the strongest reading since April.  Manufacturing was on the other side of the ledger, shedding 7K from the payrolls.  Market reaction was close to our call.  Matter of fact, our hats off the JPMorgan for their call at plus 110K.  RBS and PrimeLending came in second but will try harder!

Currently, the 10 year note is off 5/32’s.  Mortgage backs are off 12/32’s on the low note rates but higher rates are only off 5/32’s.  Not bad considering the positive news.  Reason here is the Fed is still the elephant in the room, looking to buy treasuries in the belly of the curve (5’s through 10’s), supporting the market.  Stocks liked the news but soon gave up the trade (currently down 2 points on the big board) as the dollar gained strength.

We see the market and the economy in a transition phase.  One that will continue to hold steady and improve, ever so slightly as time goes on.  The Fed, and their magic checkbook will see to that.  This country needs to see jobs growth of at least 250K per month just to break even.  That will take time allowing Austin mortgage rates to stay low into yearend and beyond.

1)      Non-Farm Payrolls – Plus 60K

2)      Private Payrolls – Plus 75K

3)      Unemployment Rate – 9.6%

4)      Hourly Earnings – Plus .1

5)      Average Workweek – 34.2 hours

Our bias for tomorrow’s release is for slightly better numbers that market consensus.  We feel that Non-farm payroll figures will post the first positive reading since May at plus 75K.  Our “guess” is predicated on better ISM Manufacturing Survey employment figures, census worker fluctuations being a thing of the past, a pickup in construction jobs due to better housing starts, and private sector employment continuing to add new workers.

Using one standard deviation, the print should come in between a positive 83k and positive 37K.  More than 100K and less than 25k would be considered “outliers” and definitely move the market.  We like the unemployment rate to be unchanged at 9.6% but would not be surprised to see 9.5%.  We agree with market consensus on Hourly Earnings and Average Work week projections.  What are others saying?

1)      Wells Fargo – Plus 29K at 9.6%

2)      Barclays – Plus 60K at 9.6%

3)      UBS – Plus 70K at 9.6%

4)      RBS – Plus 75K at 9.6% (We think they have it right)

5)      JPMorgan – Plus 110K at 9.6%

Market reaction favors steady to slightly worsening Austin mortgage pricing.  With the rally over the past few days, risk reward in not in your favor, Austin mortgage borrowers, unless the print reflects negative jobs growth.  At the same time, the Bernanke trade is still the game and will continue to support bond and mortgage pricing for as far as the eye can see.  Just the same, this report creates so much volatility that it is best to lock your interest rates now.  Hard to lose when you use PrimeLending’s world-famous float down option!

Better to be a live dog than a dead lion!

Following Friday morning’s better than expected Employment report, Austin mortgage rates moved higher. Against a consensus forecast for a decline of 110K jobs, the economy lost 54K jobs in August. Temporary census workers accounted for a loss of 114K jobs, and the private sector added 67K jobs. The June and July figures saw significant upward revisions as well. The Unemployment Rate rose to 9.6% from 9.5%, matching expectations, as the labor force grew by about 550K workers.

After several months of housing data which has failed to meet expectations, this week’s data contained relatively good news. Investors were expecting July Pending Home Sales to remain at June’s record low levels, but instead they rose 5% from June. Pending sales are a leading indicator for the housing market, so home sales may pick up a little in coming months. The chief economist of the National Association of Realtors (NAR) expects “improved affordability conditions” to boost home sales, but warned that a housing market recovery will be a “long process.”

August ISM Non-manufacturing Index rounded out this week’s data, disappointing the economic bulls as it fell to 51.1.  Market reaction to all of the above was fast and furious with bonds, notes, and mortgage backs all taking it on the chin.  Stock futures rallied 10 points on the news.  Since then, the dust has settled.  Currently, the 10 year note is off 21/32’s, mortgage backs off 14/32’s and 10/32’s, and stocks are plus 55 on the big board.  Valuations seem about right as both bonds and stocks have come off their extremes.

I believe what you are seeing is a shift in market sentiment, one that will make stock traders feel better about taking on equity risk (buying stocks) while bond traders are feeling as if it’s time to lighten up fixed income ownership (selling bonds, notes, and mortgage backs) as risk premium is taken out of the market.  For Austin mortgage borrowers, this means we should see steady to higher interest rates going forward with intermittent rallies on bad economic data.

We’re not looking for a major shift in pricing or a new, long term bearish trend developing as the economy may be holding its own but still is weak.  Remember, we LOST 54K jobs.  That is not the making of a robust economy but it is better than we expected.  Technically, the chart fits our fundamental bias.  Daily trend signals will turn bearish after today’s close.  Divergences are all over the chart, most of which have now turned neutral to bearish.  What most likely will occur is the creation of a new trading range.  One with 2.75% as support and 2.50% as resistance (10 year note).  Chopping trading and mortgage pricing could be with us into the 4^th quarter given the good news/bad news we will see within economic data releases.

This is a time for Austin mortgage borrowers to be careful.  Take advantage of any rally the market gives you and get on the bus before it leaves the station.  Glad to see that the Carolinas didn’t fall into the ocean last night.  Take care on the east coast.

Tomorrow will be “the day” as the monster Employment Report for August will be released (7:30 am cst).  Not only is it the highest profile report of the month, but given the mixed economic data and volatile trading of late, everyone will be focused like a laser on this one.  I would not be surprised to see a 250 to 300 point swing on the Dow tomorrow.  Trouble is, which way?  Tactical bias points to soft numbers, something in the neighborhood of minus 100K jobs and the unemployment rate to print 9.7%.

Today’s trade is a continuation of yesterday’s selling, albeit at a slower pace.  10 year note off 11/32’s, mortgage backs off 11/32’s in low note rate conventional, and stocks up a few points on the day.  Expect the day to be one of “squaring up” for traders in both bonds and stocks, with not much movement seen from current levels.  Best bet for Austin mortgage borrowers is to lock in their interest rate.  It just makes cents (and dollars too).

In the household survey, the Unemployment Rate held steady at 9.5%.  However, that does not reflect the true story in the underlying numbers.  July saw -159k jobs lost according to the survey and, more alarming, a loss of -570k full-time positions.  The one strong figure was the addition of +287k part-time positions. The only positive take-away from today’s employment report seems to be an increase in Average Hours Worked from 34.1 to 34.2.  This is typically a leading indicator for improvement in employment as companies work their existing employees more before finally turning to hiring new employees.   The uptick puts a little more pressure on employers to hire, but is unlikely to increase significantly before it rises from the current 34.2 hours to the pre-recession norm of around 34.6.  The bottom line is that today’s report does nothing to encourage the markets that employment is in fact improving at a faster pace.  It is acknowledged that the labor market is not bleeding jobs at this time but the pace of growth needs to pick up to +200k to +300k to represent a change in the unemployment situation in the U.S.

Bulls have now been able to push 10 year notes to a new low for the rally that has been underway for the past few months.

Have a great weekend!

1)      Non-farm Payroll – Minus 150K jobs

2)      Private Payroll – Plus 110K jobs

3)      Unemployment Rate – 9.8%

4)      Average Hourly Earnings – plus .1

5)      Average Workweek – 32.4 hours

Our bias if for the headline number of minus 110K, a touch better than expectations.  We are spot on with the 9.8% rate, feeling that at a minimum we’ll see that number (maybe 9.9%).  Private sector jobs are too speculative for our blood so we’ll go with the flow on that one (plus 110K).  Overall, the numbers are not expected to show any recovery what so ever on the employment front.  With respect to Austin mortgage rates and pricing, we see little change unless the prints are major outliers, say -200K or plus 100K (Non-farm).  Either one of those would start a major move.  Odds are good that pricing will be pretty close to where it is right now in 24 hours.  That said, this is the highest profile piece of economic data we see.  It can be a major market mover.  Unless you have loaded dice, best bet is to lock in your Austin mortgage rates and get a good night’s sleep.  Here’s what others are saying;

1)      UBS – Minus 150K and 9.7%

2)      Wells Fargo – Minus 100K and 9.7%

3)      JP Morgan – Minus 90K and 9.8%

4)      Moody’s – Minus 150K and 9.8%

Buckle up.  This ride takes off at 7:30 am cst tomorrow morning.

Overall, the report does nothing to instill confidence in economic growth.  Matter of fact, it’s started a new group of traders and investors fanning the fires of a double dip recession.  Bill Gross is now calling for unemployment to go over 10% in the coming months.  If there is a silver lining, you’ll find it in low Austin mortgage rates today, tomorrow, and well into the 3^rd quarter.

Adding to the feeding frenzy in treasuries are stories out of Hungary (bad debt jitters), rumors that French Bank Societe Generale has a book of undisclosed bad derivative positions, oil on or near the Florida coast in what is to be the worst oil spill in history, and the Euro hitting new four year lows.  Adding insult to injury, French Prime Minister Fillon is saying he saw only “good news” in parity between the Euro and the dollar.  He must have had a nip of the grape for breakfast.

Cutting to the chase, bonds, note, and mortgage backs are in rally mode, up a point of the 10 year and plus 12 to 14/32’s on MBS.  From an interest rate perspective, buying overnight and post employment report has taken the market above former resistance (119 21 futures/3.34% yield). Daily charts however, have yet to endorse the bullish move and must close above the 8 day moving average and resistance at the old high ( late May level).

Key for you to watch will be a close on cash 10 year notes of 3.26% or lower (currently at 3.24%).  Given a close that betters the 3.26% mark, the bulls will have their way with a new target of 3.09%.  A close at 3.27% or higher will most likely reverse the trend and send us into a consolidation trade.  We’ll try to make “cents” of it later today.

The May Employment report revealed the largest monthly increase in jobs since March 2000, but nearly all of the gains came from the hiring of temporary census workers. Without the census workers, the data fell short of expectations. A total of 431K jobs were added in May, below the consensus forecast of 500K. 411K jobs came from census hiring, leaving a net gain of just 20K jobs when those workers are excluded. The Unemployment Rate dropped to 9.7% from 9.9% in April, but this was mostly due to people dropping out of the labor force. Investors had expected stronger results from private sector job growth, and the stock market fell after the news. Weak labor market figures generally lead to lower inflation and are favorable for mortgage markets.

The news from the housing sector was more positive. April Pending Home Sales rose 6% from March, which was stronger than expected, to the highest level since October 2009. Pending sales are a leading indicator of future housing market activity. The April 30 expiration of the homebuyer tax credit likely pulled some pending sales forward which otherwise might have taken place later in the year. The benefits, though, of extremely low mortgage rates and very affordable home prices are in place to promote home buying activity even without the homebuyer tax credit.

1)      Nonfarm Payrolls – Plus 513K

2)      Private Payrolls – Plus 190K (less census workers)

3)      Unemployment Rate – 9.8%

4)      Hourly Earnings – plus .1

5)      Average Hourly Workweek – 34.1 hours

Handicapping the May report has been tough.  The problem lies in just how many census workers were hired in May.  April hiring’s totaled 66K out of total jobs growth of 290K.  This month, analysts are looking for 323K, a number which we feel is understated given a couple of reliable reports already on the street.  Manufacturing surveys have been mixed, leading us to believe that any growth in this sector will be minimal.  Construction may have had a better month in adding to the payrolls but continuing that pattern as the year rolls on is somewhat in question.  Private sector services jobs may be the bright spot, adding about 200K in May.  Total it all up and we see an eye popping 600K Nonfarm Payroll number.

We also estimate that the census portion (new hires for temporary assignment) is 450K, making the net Private sector jobs growth print to be 150K.  ADP estimates for the private sector came in at plus 75K and as I mentioned earlier, the “street” consensus is at plus 190K.  Market reaction to the numbers will depend on how traders interpret the numbers.  High census worker gains will not blow up the bond market.  That number is an immediate subtraction.  The drill down number will be all about Private sector growth.  100K to 200k will not move the market much.  We believe that a print of 250K or more is needed to send yields to higher levels.  No one is looking for Private growth to be under 100K, except for ADP.  The unemployment number is another story.  We see census driven hiring to begin outpacing labor force entry, pulling the rate down to 9.7%.  The street is looking for 9.8%.  The improvement in this number could be the one that starts traders selling.

With yields near record lows and mortgage pricing at or near the best levels in some time, its fool’s gold not to lock in your Austin mortgage rates. If traders jump the sell side, we see the trade to be shallow, say .50 bps worsening to mortgage pricing as cross currents from around the globe will still be there to support fixed income products.  So what are others saying;

1)      Nomura – 425K at 9.7%

2)      Wells Fargo – 511K at 9.8%

3)      JP Morgan – 545K at 9.7%

4)      CIBC – 600k at 9.7%

5)      RBS – 625K at 9.8%

Looks like they have some smart dudes at CIBC.  Buckle up, the ride starts at 7:30 am cst tomorrow morning.