Tuesday, March 30, 2010

Friday's highly anticipated March nonfarm payroll report is dominating trading action in the mortgage market today - as it will likely do all week long. The consensus guesstimate of all economists is tilted in favor of a gain of 190,000 jobs. If this projection proves accurate -- it will mark only the second month of job growth since the recession began in December 2007, and the largest gain since March of last year. Government jobs are expected to account for the bulk of the job growth, as Uncle Sam hires hundreds of thousands of workers to assist in the once-in-a-decade headcount of all Americans. Look for some muddled reactions to this data.



· The mortgage market has currently priced in completely expectations that March payrolls grew by roughly 190,000 while the jobless rate remained steady at 9.7%. If the actual numbers match or exceed this expectation look for the stock market to rally at the expense of fractionally higher mortgage interest rates.



· On the other hand, should the actual headline payroll figure post a reading of 100,000 or less -- and/or should the national jobless rate climb to 9.8% or higher - there is a strong chance selling pressure in the equity markets will develop that will in turn produce a solid flow of "flight-to-quality" capital into the credit markets sufficient enough to be supportive of steady to fractionally lower rates. While such an outcome is certainly possible -- there is nothing in terms of current macro-economic data to indicate such a result is probable.



The Conference Board, a private non-profit global business organization, said its index of consumer attitudes rose to 52.5% in March from an upwardly revised 46.4% in February, driven by a slight increase in optimism about the labor market. The "jobs hard to get" component of this index declined to 45.8% from 47.3%, while the "jobs plentiful" component increased to 4.4% from 4.0%. The fractionally improvement in both of these measures of labor market conditions was more than enough to cause already skittish investors to nudge mortgage interest rates a touch higher.



If investors were to look at the consumer confidence numbers from a wider perspective -- they would quickly see that today's modest improvement still leaves the overall index almost perfectly flat over the past 10 months - certainly not worthy of the negative mortgage market response it generated earlier today. I wouldn't be surprised to see calmer, cooler headed mortgage-backed security investors move in before the end of the day and return the Fannie Mae 4.5% 30-year security back to roughly the point where it closed yesterday. That assessment is not in any way intended to suggest your rate sheets will look any better this afternoon - because as you well know the golden rule applies here -- "he/she who has the gold makes the rules." Look for the "rule makers" to be exceptionally stingy in front of Friday's nonfarm payroll report - even if underlying conditions in the mortgage-backed securities market improve.