Rates Still Attractive – All Waiting for the NFP Report

Mortgage rates were slightly higher today, bringing them near their worst levels in several weeks.  But in all reality, these “worst levels of the past several weeks” are some of the lowest rates in history.  Apart from July/Aug 2016 and scattered occasions in late 2012, rates are the lowest they have ever been.  Second, recent rate movement has been contained in a tight range, meaning that today's rates are not that much higher than the lowest rates over the past few weeks.  

All focus on tomorrow’s employment report but this weekend a G-20 meeting in China.  IMF Managing Director Christine Lagarde warning there will be another decline in its global economic outlook, pointing that the global economy is at risk of stalling without urgent action to revive dismal trade and investment levels, and stronger efforts to reverse a rising tide of protectionism. “The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time”.  “High frequency data points to softer growth this year.” She said the July forecast of 2.2% growth issued in July will be revised lower.  My two cents -  Protectionism is on the increase and will grow as long as global growth is teetering on recession levels - every country for itself.

It is unusual for the bond and mortgage markets to improve the day before the monthly employment data.  The morning started off in negative territory, but after the ISM report, we were seeing positive numbers all day.  If there is one day with the power to cause more meaningful movement, it's tomorrow.  In fact, we could easily see the first major break above the recent range if tomorrow's Employment Situation report (aka "jobs report," "nonfarm payrolls," or simply "NFP") is much stronger than expected.  Market participants figure this would greatly increase the odds of a Fed rate hike, and mortgage rates tend to move in the same direction as Fed rate hike probabilities.  Of course there's every possibility that the jobs report comes in weaker than expected, and that could indeed result in rates improving tomorrow.  But given that we are so close to the high end of the range, it is unlikely that rates could improve enough tomorrow to challenge the lower end of the range.  

In summary, all eyes are waiting for the Jobs Report.  Only those who can afford to be wrong, should consider floating.