Thursday, April 1, 2010

All the bets are on the table and there is nothing left to do but wait for the dealer to turn over the last card - which in this case happens to be the Labor Department's nonfarm payroll report - scheduled for release at 8:30 a.m. ET, tomorrow morning.


Mortgage investors have completely "priced-in" expectations that March payrolls have grown by at least 190,000 while the jobless rate continues to hover 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 130,000 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.



This morning's stronger than expected Institute of Supply Management Index created some additional selling pressure in an already nervous mortgage market. Activity levels in the manufacturing sector expanded to a reading of 59.6% from February's 56.5% mark. The 3.1% month-over-month improvement puts the index at its highest since 2004 and is a strong indication that the business-led recovery is still alive and well.



In a separate report this morning the Labor Department said 6,000 fewer American workers cued-up in line to file first time jobless benefit claims during the week ended March 27th. This was the second straight drop in initial weekly jobless claims, consistent with continued slow labor market progress. Taking a broader view of the strain in the labor market the government reported enrollment in extended benefit programs decreased by 3,000 while enrollment in the Emergency Unemployment Compensation program rose by 267,000 during the week ended March 13, the latest period for which data is available. The underlying story here is that those participating in these special benefit programs have been without work for a long time - and are getting closer to running out of benefit eligibility with each passing week. The longer the hiring activity takes to improve, the more difficult the current pace of overall economic recovery will be to sustain. Watch this developing story closely and will update once it becomes a more significant factor in terms of mortgage interest rate trends.