The U.S. economy lost 85K jobs in December, bringing the total to 7.6 million since the recession started in December 2007. Back month revisions also come into play as October job losses increased 16K while November’s posting improved by 15k. The November number now stands at plus 4K, the first positive employment growth two years.
What will the effect on mortgage rates be? Given that the market has build in a positive jobs bias, anything that is 0 to 50K in jobs growth will not create a strong selloff. The bias will be for worsening pricing but not substantially so. This is because the market has already sold off in anticipation.
Given that fact that we closed above the 8 day, many bearish signals (ADX, Trend Intensity, etc.) have been neutralized, crippling the bears and reducing the probability of continued bearish trending. In other words, the light we were seeing “is” the end of the tunnel which should produce better mortgage pricing into Friday’s Employment release (7:30 am cst).
Mortgage pricing is trying to work its way back from the lows of the early morning trade. We are not out of the woods yet, although I wouldn’t expect this trade session today to be very volatile facing tomorrow morning’s Employment report. From what we are seeing, the estimates are anywhere’s from 100k to 130k job losses vs the 190k number from the previous report. I am leaning more towards the -110k mark at this point. Expectations are for the unemployment rate to stay at the 10.2% previous month number, as well as avg hourly earnings and avg work week numbers to stay the same as well.
The Michigan Sentiment Survey was the last piece of this morning’s data. The index fell nearly 4 points to 66.0. Every component of the index fell in early November, painting a picture of one cranky consumer. It also gives credence to yesterday’s MBA Purchase Index which fell to 9 year lows. Overall, the release looked disastrous but the devil was in the details as longer term inflation expectations are beginning to rise. While the one year inflation bogey fell, the three to five year expectations were up .3%. This will be on the Fed’s radar.
Since stocks are the game today, let’s talk the equities and your 401K. 10% plus unemployment and a weak U.S. dollar are ok short term but stock bearish in the long run. With this in mind, we still have the Fed and it’s never ending easy money program, very low inflation, and market risk that will support the bond/MBS market well into 2010. Blue chip, high quality companies are the only way to go in today’s stock market. As for mortgage pricing, it’s “steady as she goes ” into the new year.
25 billion in 10 year notes will be the focus for today as the auction deadline is less than one hour away. No news but plenty of Fed Governors are speaking with traders looking for any clues as to what they have up their sleeve. Lockhart, Yellen, Rosengren, Tarullo, and our very our Dallas Fed governor Fisher are all on the scrambled egg/rubber chicken circuit. For the most part, the day has been quiet with stocks hanging around unchanged and the 10 year note up 6/32’s (yield 3.46%). As far as the auction is concerned, street talk has it that dealers are expecting a “fair” retail showing but not one that will blow the doors off. Somewhat of a “let’s see what the other guy does first” type of attitude.
Bond prices rose on Friday as stocks sank in trading that was driven more by stock market technicals and concerns than by any other factor. Stocks had their worst week since early July. The University of Michigan's final October consumer confidence index was a touch higher than expected than September's level, but remains at recessionary levels. The Chicago purchasing managers’ index rose sharply to its highest level since December 2007 and beat expectations. The report is closely watched for clues to the national ISM index which was released today at a print of 55.7. This number was 3.1 points higher than the previous month’s reading and was higher than economists expected.
Stocks had a great day, breaking a four day S & P losing streak. The Dow finished up 199 points and the Naz gained nearly 38 points on the day. Given the stock market trade, any gains in mortgage pricing will be more difficult to come by. That said, the market profile neutralized yesterday’s bullish structure but did not turn it negative. The extreme low (yield of 3.52% - going into the close at 3.49%) held with fast money buyers taking it off the lows, not to be revisited into the close. Downside trading was mixed but we did close above the session mode, a net positive. Into the end of the week/month, our bias will lean towards a range trade with follow through in either direction (better or worsening mortgage pricing) doubtful.
Currently, the 10 year note is down 20/32’s (yield 3.49%), MBS down 6/32’s, and stocks up 75 points on the big board. Stocks will hold the key as to where Austin mortgage rates go next. The current pattern (stocks) has been for sellers to lean on the market when it rallies (5 out of the last 7 days). We will want to watch the late afternoon trade (from 2:00 to 3:00 cst) to see if they can hold today’s gains. Failure to do so will improve mortgage pricing while a positive close, especially 50 points or more, will put additional pressure on our stuff.
