EMPLOYMENT NUMBERS

From Bloomburg News:

By Lorraine WoellertOct 3, 2014 1:31 PM ET

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A surprisingly powerful surge in hiring pushed unemployment to a six-year low of 5.9 percent in September as the U.S. labor market showed renewed vigor.

The 248,000 gain in payrolls followed a 180,000 increase in August that was bigger than previously estimated, the Labor Department reported in Washington. Revisions boosted the job count by 69,000 over the previous two months. The jobless rate fell from 6.1 percent to the lowest level since July 2008.

Fast start to the new week, new month as ISM manufacturing and Construction Spending handily beat expectations.  The Institute for Supply Management Manufacturing composite jumped 2.2 points to 59.0, the best reading in 3 years.  New orders were up 3.3 points, the best print since April of 2004.  Record aircraft orders did the trick.  The employment index fell .1 yet remained strong at 58.1.  Overall, this is an impressive report.  Construction Spending was also released, up 1.8% month on month.  Again, this was the best reading in over 2 years with Residential construction up .7% and Nonresidential up 2.5%. 

 

The week ahead will feature tier one data with Factory Orders and the Fed’s Beige book tomorrow, ADP Employment estimates, Weekly Unemployment Claims, and ISM Non-Manufacturing (services) data on Thursday, and then Big Daddy, the Employment Report for August on Friday. 

 

In world news, Russian Leader Putin warned Europe he could take Kiev in 2 weeks! Bold talk from the honey badger yet this hasn’t moved the market.  For now, the geopolitical spotlight has focused on the European Central Bank Meeting this Thursday and overall risk in Europe. 

 

Technically, today’s early selling has stabilized albeit at the lows (worst levels) of the day.  10 year notes are off 17/32’s to yield 2.41%.  Mortgage backs are holding up well as spreads tighten to the treasury complex (down 4 to 7/32’s).  Stocks are off 14 points on the Dow.  Our chart now paints a picture of weakness below the 10 day moving average. 

Market Update

Mortgage applications for the week ending August 8th fell another 2.7%, despite mortgage rates being largely unchanged. Purchase apps were down 1.0%, while Refinance apps dropped 4.0%. Also hitting the wires this morning was the Retail Sales report for July, which came in unchanged and at its weakest levels since January. The ex-autos and core figures were barely in the positive, both up .1%. The consensus today has been for overall sales to rise .2%, with .4% gains seen in ex-autos and the core. Overall, weakness was spread across all sectors of the report. One thing that is important to note is that the Fed doesn’t have another FOMC meeting until mid-September, meaning they will see another retail sales report that could possibly relieve some of the bleeding from today’s numbers. Last thing on the list today is the 10yr auction around 12pm CST. Expectations are for decent demand, although with yields back down lower on an intraday basis, we might see a little weaker levels than recent auction stats.

 

The bond market reacted positively to this morning’s data, immediately trading down from around ~2.47% to 2.43%. The rebound today is preserving what’s left of the bullish trend that was in place for the short-term, although conditions still remain slightly overbought. Surprisingly, stocks are holding gains as well, not something that was expected after the weaker data this morning. Question is, who is right? Bonds or Stocks? The data, however, is competing with the ongoing flight to safety bid as the geopolitical events are not resolved, and until that time, this should remain overly supportive for Bonds. We see no reason to change our bias at this time so we still recommend getting your locks in at current levels, especially with the small rally we are seeing in MBS today. The market still needs strong day over day closing levels below the 2.40% level. Until then, it’s a range….until it’s not. Current levels – 10yr 2.42%, MBS up 5-6 ticks, and stocks up 63 points on the Dow.

Mortgage Bankers Association

MBA: Delinquency, Foreclosure Rates Reach 6-Year Lows

Sorohan, Mike--Aug. 8, 2014 Mortgage delinquencies fell for the fifth consecutive quarter, reaching seven-year lows, the Mortgage Bankers Association reported. The mortgage foreclosure rate fell to a six-year low. The MBA 2nd Quarter National Delinquency Survey said the delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.04 percent of all loans outstanding at the end of the second quarter. The delinquency rate decreased for the fifth consecutive quarter and reached the lowest level since fourth quarter 2007. The delinquency rate decreased by seven basis points from the previous quarter and by 92 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The survey said the percentage of loans in the foreclosure process at the end of the second quarter fell to 2.49 percent, down by 16 basis points from the first quarter and 84 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since first quarter 2008. The percentage of loans on which foreclosure actions started during the second quarter fell to 0.40 percent from 0.45 percent, a decrease of five basis points and the lowest level since second quarter 2005. The serious delinquency rate--the percentage of loans that are 90 days or more past due or in the process of foreclosure--fell to 4.80 percent, a decrease of 24 basis points from the first quarter and 108 basis points from a year ago. Similar to the previous quarter, 75 percent of seriously delinquent loans originated in 2007 and earlier. Loans with vintages started in 2011 and later only accounted for 6 percent of all seriously delinquent loans. “Strong job growth and continued increases in home prices in most markets have been the main contributors to these steady improvements in mortgage performance,” said MBA Chief Economist Mike Fratantoni. “We have returned to more typical seasonal patterns with respect to mortgage delinquency, with 30-day and 60-day delinquency rates increasing from the first to the second quarter on an unadjusted basis. Adjusting for the seasonal pattern, we estimate that delinquencies were down for the quarter, and are down almost a full percentage point from last year.” Fratantoni said loans made in recent years continue to perform extremely well due to the improving market and tight credit conditions, but noted a new trend emerging in growth in the number of prime adjustable-rate mortgage loans serviced. “Many of these are recently originated jumbo loans that are kept on banks’ balance sheets,” Fratantoni said. “However a majority of outstanding prime ARM loans were originated in 2007 and earlier and these loan vintages accounted for over 90 percent of seriously delinquent prime ARM loans. These older cohorts are keeping the seriously delinquent numbers elevated despite the inflow of newer loans with stronger credit quality.” MBA Director of Economic Forecasting Joel Kan said the declining trend in later stage delinquencies and foreclosure measures is clearly continuing at the national level, noting some states hardest hit by the crisis such as California and Arizona now have foreclosure inventory rates that are both back to pre-crisis levels and less than half the current national rate. On the other hand, despite declines last quarter, states with slower-moving judicial foreclosure regimes, such as New Jersey, Florida and New York, have foreclosure inventory rates two to three times the national average. The report noted 18 states with a higher foreclosure inventory rate than the national average, of which 15 were judicial states.

Market Update 8/12/14

The NFIB Small Business Optimism Index was released this morning and showed a small increase in confidence with the headline index rising from 95.0 to 95.7. The net number of small businesses expecting to hire rose from +12 to +13, while the net number reporting that they are having trouble filling positions fell from +26 to +24. Neither of these are very significant changes overall. Also out this morning was the JOLTS survey which saw its jobs opening rate tick up .1% to 3.3% for June. Its hires rate also was up .1% to 3.5%. Though this report shows minor gains, it’s these minor gains that are beginning to add up to larger ones over time. The job openings rate has climbed now from 2.7% at the beginning of the year to this month’s 3.3% print, having now broken out of its recent micro-range of 2.6-2.9%. Last bit of news today will be the 3yr Treasury note auction at 12pm CST. Market expectations are that the statistics should print in line with the following 6-auction averages and the auction should come and go without a hitch.