Commentary: The economy racked-up a second straight month of gains in March. Headline payrolls grew by a larger-than-expected 216,000 new jobs while the national jobless rate simultaneously fell to a two-year low of 8.8%. The initial knee-jerk reaction to the data sent mortgage interest rates higher - but then calmer, cooler heads stepped in and started to push rates back towards yesterday's closing levels. More seasoned market participants are keenly aware that will current high levels of unemployment persist and while the length of that unemployment is still almost shockingly high, the Fed will remain on the sidelines for many months yet to come before they begin the inevitable process of nudging their benchmark short-term interest rates higher.
One of the other dark spots in this morning's otherwise chipper employment report was found in the component that measures average hourly earnings. On a year-over-year basis earnings were up 1.7%. While any earnings gain is welcome - the fact that during the same period inflation at the consumer level has increased by 2.2% suggests the contribution from consumer spending in the next several months may be notably lower than many now anticipate. Given that consumer spending drives up to 70% of all domestic economic activity -- current forward looking growth expectations for the overall growth of the economy may be too optimistic. Time will tell - but judging by today's price action in the mortgage market - it currently appears more experienced traders are not yet ready to write-off the near-term prospects for fractionally lower mortgage interest rates.
Looking ahead to next week the economic calendar is virtually barren of anything in the way of macro-economic news for mortgage investors to chew on. Tuesday's Institute of Supply Management's Service Sector Index will get some attention as will Thursday's initial weekly jobless claims number - but there is little chance either report will pack enough "punch" to significantly influence the trend trajectory of mortgage interest rates.
In my judgment trading activity in the stock markets will be the controlling factor with respect to changes in your investors' rate sheets during the coming week. I see reasons to believe the Dow will be vulnerable to a downward correction as it trades into the 12,400 to 12,600 range. My timing models are suggesting a potential trend change will likely occur on or about Tuesday, April 5th. If my projections prove accurate, and if the sell-off is stronger than 100 points or so - a large portion of the capital leaving the stock markets will almost certainly be happy to park in the relative safe haven of Treasury debt obligations and mortgage-backed securities - a development that will tend be to supportive of the prospects of steady to fractionally lower mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
