Mortgage Market

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



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Friday, November 04, 2011


October employment report at 8:30. The overall unemployment rate declined to 9.0% frm 9.1%----somewhat a surprise. Oct non-farm jobs up 80K against estimates at 100K, non-farm private jobs +104K against +120K expected. Average hourly earnings on target at +0.2%. The U-6 unemployment rate at 16.2% (those underemployed and those that have stopped looking). Sept NFP revised from +103K to +158K, August NFP frm 57K to +104K a total of 102K additional jobs. Manufacturing jobs +5K, service producing +90K, government jobs -24K. The 80K headline still holds most of the interest and didn't meet forecasts, nevertheless the data is better overall than expectations.

The initial reaction to the employment report was rather mute in the rate sector, the 10 yr prior to 8:30 sat unchanged, 15 minutes after the release (8:45) the 10 traded down just 8?32 to 2.10% +3 bp; mortgage prices at 8:45 off just 3/32 (.09 bp). Stock indexes at 8:45 weaker, DJIA down 31 points. Curious that equities were not reacting better to the report and the higher revisions in Aug and Sept. Overall the reaction to the report has been tame, not much reaction initially and trading thin.

The G-20 meeting in France where leaders met seems like a waste of time and expense. Two things agreed upon; that Italy agreed to IMF and EU monitoring its progress on reforms; secondly the IMF said it will increase from $300B to $350B in special drawing rights. It took a lot of twisting to get the IMF to increase drawings rights by a measly $50B. Leaders of the 20 countries are refusing to put any money in the pot; reflecting frustration with Europe’s failure to end a crisis with Greece’s government edging towards collapse and Italy facing intensifying pressure to restore fiscal order.

Greece abandoned a referendum on the euro area’s latest bailout plan, reducing the risk of a disorderly default. Greek Prime Minister Papandreou faces a confidence vote in parliament today that will determine whether he stays on or calls an election. Papandreou yesterday abandoned his planned referendum on the country’s bailout after a warning from German Chancellor Angela Merkel that a no vote would cost Greece its membership of the 17-nation currency.

At 9:30 the stock market opened weaker, not taking the employment report as a positive, or after 386 points in the DJIA in the last two days investors are not willing to add to the gains. The headline that non-farm jobs were 20K lower than forecasts is being held at a higher level than the 102K increases in revisions to Aug and Sept. The decline in the unemployment rates to 9.0% appears to be ignored as a positive. Focus this morning appears to be on Europe and comments from the region's leaders that the region may fall back into recession. The DJIA opened -88 at 9:30, mortgage prices up 2/32 (.06 bp) and the 10 yr note unchanged at 2.07%.

While the day has a long way to go, so far the financial markets are very quiet. The 10 yr and mortgages are generally unchanged from yesterday; the stock indexes are lower but so far have not moved much in either direction from opening levels. There isn't anymore scheduled news today; Europe of course is still open and there is always the chance some news will appear. In the absence of anything out of the region US markets may be in for one of the few quiet sessions we have had for awhile. That said, as this is being sent MBS prices have improved to +6/32 (.18 bp) and up 4/32 (.12 bp) frm 9:30.