Mortgage Rates Jumpy This Morning

Mortgage rates are a bit jumpy this morning as we started off on the wrong side of the tape as the stock indexes are showing some positive direction. 

Weekly jobless claims dropped more than expected, with the 4-week average at 243K - up from 242.25K last week. The average increased due to the increase in claims the week before. March trade deficit was close to expectations, but nothing to move the markets. Q1 unit labor costs did increase more than anticipated.  Higher unit labor costs are inflationary and bearish for interest rates. The weaker productivity is a continuing problem for the economy - lower worker productivity is dragging against other data that is more positive for the outlook. The manufacturing and service sector indexes still expanding but at a slightly lesser pace in April. On the more positive sign, Q4 productivity was revised better.  Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends.

The House is expected to vote on its health care bill today. It looks like there are enough votes to pass it. One obstacle has been about patients’ pre-existing conditions, but the House agreed to add $8B to helping those that would pay higher premiums based on pre-existing conditions. It then goes to the Senate that now is not on board with the bill that will pass the House today. The repeal of Obamacare would unlock funds that could be used to help pay for comprehensive tax reform, Trump’s primary goal.

Yesterday the House passed a $1.1 trillion bill to keep the government open until the end of the fiscal year (Sept 30st). The Senate is expected to vote on the bill before current government funding expires at 12:01 a.m. Saturday, and it is expected to pass the legislation.

Inflation? Not in commodities; crude oil as we have mentioned numerous times would fall, is down again this morning trading at the lowest price this year. As the price slips, other commodities are following. The only commodities that are higher today are hogs and cattle.

Tomorrow the April employment data. Not likely interest rates will improve today with that hanging over markets. Unemployment is expected to be up 1 point to 4.6%; NFP jobs +185K, private jobs +180K (ADP yesterday said 170K private jobs); average hourly earnings, one major component, expected to have increased 0.3%.

After two weeks of neutral technical indicators we use that held a neutral pattern, this morning breaking down and now becoming bearish. The 10yr is now at its highest rate in almost a month at 2.36% and is projecting a move to 2.40%. Through the remainder of the session, the bond and mortgage markets will keep focused on the equity markets.