Panic in Markets Pushes Rates Lower, Will NFP Have an Impact?
Posted 05-07-2010 at 08:08 AM by VictorBurek
What a day we had yesterday. Panic around the globe concerning the continuing drama in Greece sent stock markets spiraling lower. At one point yesterday, our Dow had lost a record -998 points, but by day’s end only ended down -347. Rumor has it a trading error led to the record drop where our stock market dipped 600 points in less than an hour! Bonds benefitted as investors flocked to safety driving treasury yields much lower and mortgage backed securities prices to the best level seen this year. All lenders did reprice better with many issuing multiple reprices for the better.
This morning we received the single most impactful report we get on a monthly basis. At 8:30 am eastern time, the Bureau of Labor Statistics released the monthly Employment Situation report. Since consumer spending accounts for the vast majority of our economic growth, market participants track jobs as a way to gauge consumer demand and economic activity. If the number of unemployed Americans is moving higher, more people are without a job and therefore without stable income. This drains consumer demand and forces companies to keep costs low to stay in line with falling revenues. High unemployment is bad for stocks. Generally what is bad for stocks is good for bonds and mortgage rates.
This report gives us four different readings:
1. Nonfarm Payrolls - totals the number of jobs lost or created in the prior month. Consensus Forecast: 200,00 jobs gained, last month+162,000
2. Unemployment Rate – the percentage of able Americans who are out of work. Consensus Forecast: 9.7%, same as last month
3. Average Hourly Earnings – shows the monthly change in the hourly wages. Consensus Forecast: +0.2%, -0.1% last month
4. Average Work Week – shows the average amount of hours worked weekly. Consensus Forecast: 34.0 hours, same as last month
Here are the results:
1. Nonfarm Payrolls: +290,000 jobs were created last month, much better than expected. Adding more good news, March’s numbers were revised higher to +230,000 from the first reported +162,000 and February’s report was also revised better from -14,000 to +39,000.
2. Unemployment Rate: 9.9%, higher than expected. How did the unemployment rate move higher when we added more jobs? Well, people have re-entered the job market. During the past couple years, many people were so frustrated with lack of finding a job that they left the work force and no longer counted in the official unemployment rate. With our economy appearing to be on the road to recovery, many people are starting to re-enter the job market. Despite the negative move with the unemployment rate, this does show some consumer optimism.
3. Average Hourly Earnings: 0.0%, worse than expected. American workers income is not rising which can constrain consumer spending.
4. Average Work Week: 34.1, better than expected. Despite no change in hourly wages, Americans are working longer hours which will equate to a bigger pay check and more money to spend into the economy.
All in all, this report was positive but it appears concern in Europe continue to weigh on the markets. Following the release, MBS have given back some of the gains from yesterday but not as much as I would have expected following this positive data. Our stock market is flirting around unchanged levels. If stocks can gain some momentum, I suspect bond prices will deteriorate which can lead to reprices for the worse.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to slightly worse than yesterday’s repriced sheets. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. You can elect to pay less in closing costs, but you will have to accept a higher interest rate. No cost loans, where the lender pays your costs for you, should be in the 5.375% to 5.5% range. No cost loans are great options for home owners who do not plan on keeping their current home for more than 3 years. If you are keeping your home for longer time period, you should pay the costs and secure the lower interest rate.
With rates holding at the best levels of the year, I advise locking. I see no benefit in floating right now.
Have a great weekend!
This morning we received the single most impactful report we get on a monthly basis. At 8:30 am eastern time, the Bureau of Labor Statistics released the monthly Employment Situation report. Since consumer spending accounts for the vast majority of our economic growth, market participants track jobs as a way to gauge consumer demand and economic activity. If the number of unemployed Americans is moving higher, more people are without a job and therefore without stable income. This drains consumer demand and forces companies to keep costs low to stay in line with falling revenues. High unemployment is bad for stocks. Generally what is bad for stocks is good for bonds and mortgage rates.
This report gives us four different readings:
1. Nonfarm Payrolls - totals the number of jobs lost or created in the prior month. Consensus Forecast: 200,00 jobs gained, last month+162,000
2. Unemployment Rate – the percentage of able Americans who are out of work. Consensus Forecast: 9.7%, same as last month
3. Average Hourly Earnings – shows the monthly change in the hourly wages. Consensus Forecast: +0.2%, -0.1% last month
4. Average Work Week – shows the average amount of hours worked weekly. Consensus Forecast: 34.0 hours, same as last month
Here are the results:
1. Nonfarm Payrolls: +290,000 jobs were created last month, much better than expected. Adding more good news, March’s numbers were revised higher to +230,000 from the first reported +162,000 and February’s report was also revised better from -14,000 to +39,000.
2. Unemployment Rate: 9.9%, higher than expected. How did the unemployment rate move higher when we added more jobs? Well, people have re-entered the job market. During the past couple years, many people were so frustrated with lack of finding a job that they left the work force and no longer counted in the official unemployment rate. With our economy appearing to be on the road to recovery, many people are starting to re-enter the job market. Despite the negative move with the unemployment rate, this does show some consumer optimism.
3. Average Hourly Earnings: 0.0%, worse than expected. American workers income is not rising which can constrain consumer spending.
4. Average Work Week: 34.1, better than expected. Despite no change in hourly wages, Americans are working longer hours which will equate to a bigger pay check and more money to spend into the economy.
All in all, this report was positive but it appears concern in Europe continue to weigh on the markets. Following the release, MBS have given back some of the gains from yesterday but not as much as I would have expected following this positive data. Our stock market is flirting around unchanged levels. If stocks can gain some momentum, I suspect bond prices will deteriorate which can lead to reprices for the worse.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to slightly worse than yesterday’s repriced sheets. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. You can elect to pay less in closing costs, but you will have to accept a higher interest rate. No cost loans, where the lender pays your costs for you, should be in the 5.375% to 5.5% range. No cost loans are great options for home owners who do not plan on keeping their current home for more than 3 years. If you are keeping your home for longer time period, you should pay the costs and secure the lower interest rate.
With rates holding at the best levels of the year, I advise locking. I see no benefit in floating right now.
Have a great weekend!
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