Daily Commentary by Larry Baer: The
majority of mortgage investors were anticipating the June nonfarm payroll
report would indicate the economy created approximately 90,000 net new jobs
during the month. The national jobless
rate was expected to remain at 8.2%.
According to the Labor Department, 80,000 new
jobs were created in June and the national jobless rate remained unchanged at
8.2%. Revisions for May and April mostly
cancelled each other out - up 8,000 for May and down 9,000 for April. Further details of the report showed average
hourly earnings rose 6 cents an hour to $23.50 while the length of the average
workweek increased to 34.5 hours from 34.4 hours the prior month. The headline payroll growth during the
second-quarter averaged 75,000 jobs per month.
Today's report was virtually certain to be
puny and second-quarter payroll growth was projected to be one of the weakest
since 2010 -- even if today's jobs numbers had been considerably stronger. I readily acknowledge the market is always
right and I am some of the time - but a 10,000 job difference between the
actual number and the consensus expectation seldom spawns a 50 basis-point (as
I write) price rally in the mortgage market.
There are those who will argue the power
behind today's big move in the mortgage market is provided by the idea that the
June nonfarm payroll figures make it increasingly likely the Fed will move
aggressively to push interest rates even lower by starting a new bond buying
program when the Open Market Committee meets on August 1st. Perhaps so, but I wonder if the lowest interest
rates in roughly 200 years hasn't yet spawned a solid round of economic growth
- why will even lower rates do the trick?
I don't have the answer - I just have the question. I also wonder if I had only one or two
bullets left in my monetary policy gun would I choose to fire them now - or
would I hold my fire in case things get even worse in coming months.
I think it is also worth noting that the
technical profile of the mortgage market is not supporting the current
macro-economic hype very well. When
divergences of this sort develop - more often than not it has been my
experience it is the technical profile that is correct.
Looking ahead to next week - the Treasury
Department will be in the credit markets looking to sell $32 billion of 3-year
notes on Tuesday, $21 billion worth of 10-year notes on Wednesday and a $13
billion stack of 30-year bonds on Thursday.
The economic calendar will be relatively light, with Friday's 8:30 a.m.
ET release of the June Producer Price Index slightly outshining the initial
weekly jobless claims figures scheduled for release at 8:30 a.m. ET on
Thursday. With today's big run-up in
price Uncle Sam may have to grant some buyer concessions in order to attract
the capital he is looking to borrow at next week's debt sale. If so, it will
likely be difficult for mortgage interest rates to move notably lower - at
least until the three-part auction series is complete.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
