Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. It’s the first Friday of the month, so it must be surprise Friday. The July employment report this morning didn’t disappoint in terms of data well off the mark of economists’ forecasts. Not unusual that employment data is unpredictable, it occurs almost every month. Today no exception; the unemployment rate was expected unchanged at 8.2%, it increased to 8.3% (rounded frm 8.524% actual). Non-farm job growth was thought to be about 100K, jobs increased 163K; non-farm private jobs were expected about +105K, private jobs increased 172K. Revisions to prior reports subtracted a total of 6,000 jobs to payrolls in the previous two months. Factory payrolls increased by 25,000, more than twice the survey forecast of a 10,000 increase and boosted by a 12,800 pickup in employment at makers of motor vehicles and parts. The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 15% from 14.9%. The jobless rate, derived from a separate survey of households, has exceeded 8% since February 2009, the longest stretch in monthly records going back to 1948. The initial reaction to the better employment report sent stock indexes up with the DJIA futures at 9:00 +159. The bond market is seeing some selling but the 10 yr note and mortgages are not being routed; at 9:00 the 10 yr note traded at 1.54% up 7 bp while MBS price for 30 yr product down 29 bp. The 10 has support at 1.55%, its 40 day moving average; the last time the 10 yr closed above its 40 day average on its yield was on March 7th. The stronger employment report, at least based on the headlines, may lessen the Fed’s desire to ease more---a stretch in thinking but it has to be considered. One better data point isn’t likely to sway Bernanke yet it doesn’t encourage him either. The policy statement from the FOMC Wednesday said, (the Fed) “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” The employment data is being explained as a potential anomaly due to seasonal factors within the auto industry and big increases in education. Overall the data was better but it has met with suspicion that August employment will fall back and not ratify what BLS is reporting for July. At 9:30 the DJIA opened +90, NASDAQ +45, S&P 13. The 10 yr note yield at 9:30 1.55% +8 bp and 30 yr MBS price -33 bp. Within minutes of the 9:30 open the DJIA was trading up 177 points. More key data at 10:00; the July ISM services sector index, expected at 52.0 frm 52.1 in June, came at 52.6 a little better. New orders were up but the employment component declined to 493 frm 52.3. A mixed report but still supportive. This week saw an increases in interday volatility in the bond and mortgage markets; the 10 treasury note at 10:00 this morning is unchanged from its close last Friday, MBS prices at 10:00 up 16 bp frm last Friday. There is still safety moves into US treasuries as Europe continues to fumble, a lot of strong talk as usual, as usual no actual action. Although employment was better in July the Fed is still believed to be ready to increase purchases of mortgage-backed securities in an easing move in Sept at the next FOMC meeting (Sept 12th and 13th). That said, as in Europe talk is cheap; there is no guarantee that the Fed will ease---just speculation now based on a weak economy.