Thursday, February 4, 2010

This morning's rally in the mortgage market probably has far more to do with stock market weakness and "flight-to-quality" issues created by growing concerns about national debt defaults by Greece and Portugal -- than it has to do with investors' expectations for a super-weak January nonfarm payroll figure from the Labor Department tomorrow morning.



The European Commission is highly likely to find viable mechanisms to bolster the credit worthiness of these two financial distressed members of the Euro-zone - if for no other reason than the consequences of failure would be extremely onerous for all the members of the confederation.



From a technical perspective I see reason to believe the DOW will likely put in a short-term low between tomorrow, Friday, February 5th and Monday, February 8th in a range between 10064 on the high side and 9994 on the low end. If this assessment proves accurate, the "flight-to-quality" buying spree that has contributed to this morning's nice rally in the mortgage market will fade sharply as money returns to the riskier -- but higher yielding stock markets.



Tomorrow morning's January nonfarm payroll report could miss forecasts currently calling for a headline job gain of 8,000 and a national jobless rate of 10.1% by a wide margin, because of the impact of one-time factors including annual statistical benchmark revision and the direct impact of colder-than-normal winter temperatures on construction and other outdoor employment categories.



Government data wonks are going to make statistical revisions to the number of jobs they guesstimated were lost in 2009 - and the number of jobs the year-end hard figures reflect. Most analysts believe this "adjustment" will result in an increase in the number of job lost for the calendar 2009 of 824,000. This "adjusted" number has been kicked around by market participants for the past couple of weeks -- so as long as the actual value matches up reasonably close -- it probably won't cause much of a reaction among investors.




As the final hours tick down ahead of tomorrow's much anticipated January nonfarm payroll report -- a growing number of analysts are adjusting their forecast to suggest the economy added just 8,000 more jobs than it lost last month - a rather sharp revision from the call for a gain of more than 20,000 jobs that was broadly popular as late as yesterday afternoon. Any positive improvement in the pace of job creation will be a boost for the prospects of further economic recovery - and will tend to put additional upward pressure on mortgage interest rates as capital sources see an opportunity to demand a higher yield for their available investment dollars.



In the convoluted world of the mortgage market lousy jobs reports are almost always supportive of steady to perhaps fractionally lower rates. This time around it will likely take a surprisingly dismal jobs report showing a loss of 15,000 or more jobs together with a national unemployment rate exceeding 10.1% to power a notable move to lower mortgage interest rates.