Friday, 3/5/10 10:07 AM
At 8:30 the Feb employment report hit; non-farm jobs were down just 36K and the unemployment rate unchanged at 9.7%. Through the week the estimates for NFP jobs had been continually increased with markets focusing on the bad weather in Feb, by yesterday the forecasts had jumped to 75 jobs lost due to weather. Early this week the estimates were -10K. January job losses were revised to -26K frm -20K, in Dec the revision was from -150K to -109K; take the three months together and there has been no job losses in the past three months. Construction jobs were down 64K (likely the weather), goods-producing jobs were down 60K, temporary jobs +48K, census workers accounted for 15K jobs, according the report government jobs declined 18K. State and local governments reduced employment by 25,000 during the month, while the federal government added 7,000; mostly census workers. The unemployment rate was slightly better than 9.8% that was expected. The initial market reaction sent stock indexes higher and hammered the bond and mortgage markets.
Within the BLS report they said it was not possible to quantify the impact weather had on the job markets. There are some out saying that if the weather were not an impediment the number of jobs would have actually increased; but even the BLS has no idea. The report showed 1 million Americans said bad weather prevented them from getting to work during the survey week. The so-called underemployment rate which includes part- time workers who prefer a full-time position and people who want work but have given up looking -- rose to 16.8% from 16.5%.
At 9:00 this morning the 10 yr note was off 17/32 at 3.67% +6 bp; mortgage prices -6/32 (.19 bp) and the DJIA +51. At 9:30 the DJIA opened +57, 10 yr note -15/32 3.66% +5 BP and mortgage prices were -5/32 (.15 bp). (At 10:00 treasury prices and mortgage prices were worse, mtgs at 10:00 -10/32 -.31 bp)
Thinking ahead; the March, Apr, and May employment data will likely be supported with the government hiring thousands for the census. Markets will however, take that into account but investors will take it as good news even though the jobs won't last long. Putting huge numbers of temporary workers back earning incomes will likely increase retail sales in the coming months.
In other news; Fannie and Freddie are reportedly going to ask banks to re-purchase about $21B in bad loans based on faulty underwriting. The big banks will have the biggest chunk to stomach; estimates if the buy-backs happen are expected to amount losses totaling $7B. Fannie and Freddie have lost a total of $200B in the past three years, now combing their files for as many faulty loans they can push back on the banks that sold them the loans.
The situation in Greece appears to be improving somewhat. One of the drivers pulling US treasury rates lower on safe haven moves, Talk out of the EU this morning is that the Union is working on a plan to keep Greece from any defaults. Germany, the leading economy in Europe, has been highly critical that Greece as not done enough to cut spending, this morning saying Greece is moving in the right direction. If Greece dodges the default bullet and Spain and Portugal can also dodge it, it will remove one of the supports in the bond markets. How much support the US bond markets have gained on the debt defaults concerns is questionable.
Later this afternoon, Jan consumer credit is expected to be down $3.8B. Consumer credit has been declining for the past year as consumers refrain from credit spending and banks continue to tighten underwriting.
Looking from a technical perspective; as we have been mentioning, the mortgage markets were very overbought and a correction was likely. The 10 yr note was also in somewhat of a tenuous position, unable to break below 3.60%; the last time the 10 yr note traded below 3.60%/3.58% was on Dec 18th, since then every attempt to test it has failed. Yesterday the 10 yr yield closed at 3.61%.
PRICES @ 10:00 AM
10 yr note: 99.17 -19/32 3.68% +7 BP
5 yr note: 100.03 -12/32 2.36% +9 BP
2 Yr note: 99.29 -3/32 0.92% +6 BP
30 yr bond: 100.01 -26/32 4.62% +5 BP
Libor Rates: 1 mo 0.229%; 3 mo 0.253%; 6 mo 0.390%; 1 yr 0.850%
30 yr FNMA 4.5 Mar: @9:30 101.09 -5/32 (.15 bp) (+1/32 (.03 bp) frm 9:30 yesterday)
15 yr FNMA 4.0 Mar: @9:30 102.03 -5/32 (.15 bp) (unch frm 9:30 yesterday)
30 yr GNMA 4.5 Mar: @9:30 101.24 -5/32 (.15 bp) (+3/32 (.09 bp) frm 9:30 yesterday)
15 yr GNMA 4.0 Mar: @9:30 102.29 -1/32 (.03 bp) (+3/32 (.09 bp) frm 9:30 yesterday)
Dollar/Yen: 90.20 +1.10 yen
Dollar/Euro: $1.3571 -$0.0009
Gold Apr: $1136.90 +$3.80
Crude Oil Apr: $81.72 +$1.51
Goldman-Sachs
Commodity Index: 527.38 +7.65
DJIA: 10511.41 +67.27
NASDAQ: 2309.56 +17.24
S&P 500: 1130.96 +7.99