Daily Commentary by Larry Baer: The
yield on 7- and 10-year U.S. Treasury notes fell to new 60-year lows this
morning as worries of contagion from Spain's
ailing banks created another round of safe-haven buying among global investors.
Spain's
financial woes, rising Italian borrowing costs and uncertainties over the Greek
national elections scheduled for June 17th sent global investors
into another almost panicked "flight-to-quality" buying spree this
morning.
As if they weren't already worried enough
about the health of the world economy - investors were further disturbed by
this morning's news private payroll growth accelerated only slightly last month
while weekly requests for government jobless benefits grew by a surprising
10,000 claims -- strong hints the recovery in the labor sector is approaching
stall speed. Other data this morning
showed economic growth as measured by Gross Domestic Product was softer than any
observers expected in the first quarter, with business restocking shelves more
slowing than previously thought and government spending declining sharply.
Today's battery of data on the economy and
the job market comes ahead of tomorrow morning's 8:30 a.m. release of the May
Nonfarm Payroll report. The consensus
forecast is calling for nonfarm payrolls to increase by 150,000, up from a
measly 115,000 jobs in April. Numbers
that closely approximate the consensus estimate have already been priced into
most of your mortgage investors' rate sheets and will probably have little, if
any impact on the current level of mortgage interest rates.
In the unlikely case the headline nonfarm
payroll figure rises dramatically higher than projected -- and/or the jobless
rate posts a reading less than 7.9% -- look for mortgage investors to react to
the unsettling news by pushing mortgage interest rates upward before the end of
the day.
A softer-than-expected nonfarm payroll number
(130,000 new jobs or less) will likely make the knees of investors the world
over start to knock. A second weak
payroll number in a row combined with expanding downside risks in Europe has
the potential to send global stock prices notably lower - an event should it
occur - sure to directly benefit the prospects for steady to lower mortgage
interest rates here in the states.
In my judgment the mortgage market has
already largely priced in expectations for another mediocre labor market
report. If my assessment proves
accurate, look for any initial early rally attempt favoring higher prices and
lower rates to fade noticeably by midday as investors move to book profits
before the final bell sounds tomorrow afternoon.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
