Mortgage Rates Surprised Move Before Jobs Report

Mortgage rates made a surprise move today and had a nice short-covering rally today in treasuries taking MBS prices higher and so successfully held its 200 day average – all this before a Jobs Report scheduled to be release tomorrow morning. There is not much new or significant to the action today - a lot of selling in the last two weeks on the wind of better economic outlook in Europe and China and momentary increased concerns that inflation is about to heat up - based mostly on the recent increase in crude and commodity prices, unit labor costs and the weakening dollar.

As I mentioned, the timing of the improvement is ironic and potentially frustrating for rate watchers as it falls on the eve of the exceptionally important Jobs Report.  This is the single biggest piece of economic data on any given month, and it has more power to move rates than any other economic report.  What we saw today should be thought of position squaring for the always volatile and mostly much different than forecasts. How many jobs? Consensus before ADP reported private jobs yesterday had been about 230K new jobs, likely that idea took a little step back after 169K jobs were reported by ADP against what economists were estimating at 205K new jobs. Job growth in March 126K. Another soft jobs report will toss water on the widely held belief Q1 was an anomaly due to weather. One thing that is always predictable is at 7:30 in the morning we can expect volatile markets. As important as jobs are, look more toward average hourly earnings - expected as always up.  More than that should trump most of the other details on the BLS data.

Although MBS prices had a nice improvement, the bond and mortgage markets remain bearish technically. Fundamentals though have changed in the past few weeks with better data from Europe and increasing interest rates across the EU. The ECB’s quantitative easing is gaining momentum as Draghi stated he was certain it would when he began it. The recent increase in US rates has been mainly driven by the increases in in rates in Europe.

What will it take to drop interests in any significant way? The only way I can now see it is a substantial decline in US and global equity markets. Not out of the question, but pundits from all perspectives have been talking for months that a long overdue 10% correction or more is just around the corner. While the key indexes are generally unchanged this year except NASDAQ there has been no rush to sell with the Fed and other central banks in a sense forcing investors to buy stocks. The Fed unwilling to begin tightening but warnings continue to come from Yellen and most other Fed officials that rates will be increased, when is the debate.

In summary, it is still way too early to say our losing streak is over, but you have to start somewhere.  Tomorrow's jobs report may send rates either way, or not move markets at all, if it comes in near expectations.  Momentum is still against us, but at least there is a glimmer of hope on the horizon.