9/3/2010 If closing is in: 5-7 days: LOCK. 7-15 days: SUGGEST LOCKING. 15-30 days: SUGGEST LOCKING ON ANY PRICE IMPROVEMENTS. 30+ days: FLOAT. Before we all go out and start celebrating the end of the recession based on today's better than expected Sept employment report lets look at the reality. The report was better than expected with 67K new private jobs created in the month (mkts were looking for 20K), and revisions to June and July added 122K more jobs (mostly census workers not fired yet) but still the two months had a combined decline of 229K. While we applaud anything in the economy that shows some improvement, the fact is that the job creation is still lagging the number of people entering the job market. The economy is not generating jobs at a pace that exceeds the number of would be workers entering the hunt for jobs. In the month manufacturing jobs declined 30+K while construction jobs were reported up 16K; construction spending fell 1.0% in July and the housing sector is still in depression. A fall in manufacturing, if true, isn't good and the increase in construction jobs makes little sense. The economic outlook is no less certain now than it was yesterday or over the last month. While we believe that we have seen the lows on mortgage rates, that belief is founded on the belief that the economy won't enter a double dip as we have noted previously. However, we are not in the camp that interest rates are going to rise much either. Likely interest rates will move a little higher next week but we also think rates will have their day as continuing economic reports won't support the euphoria the equity market exhibited this week. What we have had in the financial markets over the past two weeks has been too much negativity and concerns of a double dip recession and overdone movements into safe treasuries; both views have merit and will likely continue but recently the fear factor pushed a little too high----at least based on the August employment data. Looking to next week, a four day one; there is very little in the way of market-moving data to drive markets. The Fed will release its beige Book, the Fed's detailed report on the economy, on Wednesday, talking heads will make a big point of it but the reality is that there is rarely anything new in the Book, just more details to keep CNBC in business. The rate market will have to deal with $67B of supply with Treasury auctioning 3 yr, 10 yr and 30 yr notes and bond. Next Week the President said today he will have more detailed plans for the economic recovery. He appeared at the White House right after the employment report this morning, we got the impression he was prepared to salve over what had been expected as another weak employment report. When it didn't happen he seemed out of sync. “I will be addressing a broader package of new ideas next week,” he said. The economy is moving in “the right direction; we just have to speed it up.” This week wasn't as bad as it seemed when looking at weekly changes; the prices of mortgages and their interest rates didn't change at all. A lot of volatility; price gains on Monday and Tuesday then selling the rest of the week left mortgage prices on 30s unchanged and 15s were actually up 15/32 (.46 bps). The treasury market however did see an increase in rates; the 10 yr note was up 5 basis points in yield to 2.71%, the 5 yr note yield at 1.49% up just 1 basis point. Stock indexes gained; the DJIA +298. Crude declined $0.81, gold jumped $11.00 on the week. PRICES @ 4:00 PM 10 yr note: 99.08 -24/32 2.71% +8 BP 5 yr note: 98.27 -9/32 1.49% +7 BP 2 Yr note: 99.23 -1/32 0.52% +2 BP 30 yr bond: 101.16 -44/32 3.79% +8 BP Libor Rates: 1 mo 0.257%; 3 mo 0.292%; 6 mo 0.493%; 1 yr 0.834% 30 yr FNMA 4.0 Sept: 102.25 -11/32 (.34 bp) (+2/32 (.06 bp) frm 9:30) 15 yr FNMA 3.5 Sept: 103.05 -5/32 (.15 bp) (-1/32 (.03 bp) frm 9:30) 30 yr GNMA 4.0 Sept: 103.10 -9/32 (.28 bp) (+1/32 (.03 bp) frm 9:30) 15 yr GNMA 3.5 Sept: 103.20 -3/32 (.09 bp) (+2/32 (.06 bp) frm 9:30) Dollar/Yen: 84.39 +0.12 yen Dollar/Euro: $1.2890 +$0.0063 Gold Dec: $1248.90 -$4.50 Crude Oil Oct: $74.36 -$0.66 Goldman-Sachs Commodity Index: 515.67 +1.58 DJIA: 10,447.93 +127.83 NASDAQ: 2233.75 +33.74 S&P 500: 1104.51 +14.41
If closing is in:
5-7 days: LOCK.
7-15 days: SUGGEST LOCKING.
15-30 days: SUGGEST LOCKING ON ANY PRICE IMPROVEMENTS.
30+ days: FLOAT.
Before we all go out and start celebrating the end of the recession based on today's better than expected Sept employment report lets look at the reality. The report was better than expected with 67K new private jobs created in the month (mkts were looking for 20K), and revisions to June and July added 122K more jobs (mostly census workers not fired yet) but still the two months had a combined decline of 229K. While we applaud anything in the economy that shows some improvement, the fact is that the job creation is still lagging the number of people entering the job market. The economy is not generating jobs at a pace that exceeds the number of would be workers entering the hunt for jobs. In the month manufacturing jobs declined 30+K while construction jobs were reported up 16K; construction spending fell 1.0% in July and the housing sector is still in depression. A fall in manufacturing, if true, isn't good and the increase in construction jobs makes little sense. The economic outlook is no less certain now than it was yesterday or over the last month.
While we believe that we have seen the lows on mortgage rates, that belief is founded on the belief that the economy won't enter a double dip as we have noted previously. However, we are not in the camp that interest rates are going to rise much either. Likely interest rates will move a little higher next week but we also think rates will have their day as continuing economic reports won't support the euphoria the equity market exhibited this week. What we have had in the financial markets over the past two weeks has been too much negativity and concerns of a double dip recession and overdone movements into safe treasuries; both views have merit and will likely continue but recently the fear factor pushed a little too high----at least based on the August employment data.
Looking to next week, a four day one; there is very little in the way of market-moving data to drive markets. The Fed will release its beige Book, the Fed's detailed report on the economy, on Wednesday, talking heads will make a big point of it but the reality is that there is rarely anything new in the Book, just more details to keep CNBC in business. The rate market will have to deal with $67B of supply with Treasury auctioning 3 yr, 10 yr and 30 yr notes and bond. Next Week the President said today he will have more detailed plans for the economic recovery. He appeared at the White House right after the employment report this morning, we got the impression he was prepared to salve over what had been expected as another weak employment report. When it didn't happen he seemed out of sync. “I will be addressing a broader package of new ideas next week,” he said. The economy is moving in “the right direction; we just have to speed it up.”
This week wasn't as bad as it seemed when looking at weekly changes; the prices of mortgages and their interest rates didn't change at all. A lot of volatility; price gains on Monday and Tuesday then selling the rest of the week left mortgage prices on 30s unchanged and 15s were actually up 15/32 (.46 bps). The treasury market however did see an increase in rates; the 10 yr note was up 5 basis points in yield to 2.71%, the 5 yr note yield at 1.49% up just 1 basis point. Stock indexes gained; the DJIA +298. Crude declined $0.81, gold jumped $11.00 on the week.
PRICES @ 4:00 PM
10 yr note: 99.08 -24/32 2.71% +8 BP
5 yr note: 98.27 -9/32 1.49% +7 BP
2 Yr note: 99.23 -1/32 0.52% +2 BP
30 yr bond: 101.16 -44/32 3.79% +8 BP
Libor Rates: 1 mo 0.257%; 3 mo 0.292%; 6 mo 0.493%; 1 yr 0.834%
30 yr FNMA 4.0 Sept: 102.25 -11/32 (.34 bp) (+2/32 (.06 bp) frm 9:30)
15 yr FNMA 3.5 Sept: 103.05 -5/32 (.15 bp) (-1/32 (.03 bp) frm 9:30)
30 yr GNMA 4.0 Sept: 103.10 -9/32 (.28 bp) (+1/32 (.03 bp) frm 9:30)
15 yr GNMA 3.5 Sept: 103.20 -3/32 (.09 bp) (+2/32 (.06 bp) frm 9:30)
Dollar/Yen: 84.39 +0.12 yen
Dollar/Euro: $1.2890 +$0.0063
Gold Dec: $1248.90 -$4.50
Crude Oil Oct: $74.36 -$0.66
Goldman-Sachs
Commodity Index: 515.67 +1.58
DJIA: 10,447.93 +127.83
NASDAQ: 2233.75 +33.74
S&P 500: 1104.51 +14.41