Mortgage Rates Seeing a Little Improvement Today - Jobs Report Week

Mortgage rates are moving lower so far today.  We had a little bit of a ride last week, but overall, the MBSs market was positive by week’s end and the 10yr still traded it its narrow range. This is employment week.  The last two months have been well off estimates to the high side, especially when ADP in February said 298K jobs about 85K more than forecasts and revised January up from what was originally report. ADP will again start the discussions on Wednesday when it reports its data.

Thus far, it had been quiet before we got the economic data this morning. March ISM manufacturing index came in a tad better than anticipated.  New orders, even though they were lower, are still strong since December 2013.  Employment data in the report came in very strong with the best read since June 2011.

Construction Spending was off estimates for the month, but was offset with positive revisions for January.  A concern was the Yr/Yr spending as that declined a little over February.

Again, the big news will come Friday with the Jobs Report.  While the Non-Farm Payrolls (estimated to hit 185K) and the Unemployment Rate (estimated to remain at 4.7%) will get all of the headlines, it is the Year-Over-Year Average Hourly Wages that will get the most attention from MBS traders. Last time around it rose to 2.8% which is very high indeed. If that moves to 2.9% or even 3.0%, MBS will sell off even if there’s a downside miss to the NFP report.

From a political viewpoint, the biggest event to watch is Friday's meeting with China's president Xi Jinping in Florida. Most will be watching for either more friction or softening between the U.S. and Chinese leaders in terms of trade and currency.  Also, the bond market continues to price in risk for the French election as well and shifts in polling data will have an impact in mortgage rates.

On Wednesday, we get the release of the Minutes from the last FOMC meeting where they raised rates will be very key.  Also, there will be a number of Fed officials on the speaking circuit which of course, will garnish media attention.

There should not be much of anything that should move mortgage rates out of its very tight range today. For the week, it will take Average Hourly Earnings YOY to drop below 2.5% for you see a sustainable (multi-week) rally. But, if that moves from the current level of 2.8 to 2.9 or 3.0, then you will see the bond market begin to price in another Fed rate hike.