Monday, August 10, 2015

What The Employment Report Can Do To Your Home Buying Plans

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What The Employment Report Can Do To Your Home Buying Plans

No other economic report gets more attention, is more closely watched, analyzed, dismissed, cited as a barometer or has a bigger impact on mortgage interest rates than the Employment Report. I have been in front of a TV at 8:30 in the morning on the first Friday of almost every month for the past 25 years, waiting with great anticipation to see what that number will look like.  This is immediately followed of course with fretting and wondering about how the financial markets will respond and what will happen to interest rates that day.
The mighty jobs report can have an immediate and significant impact on your monthly mortgage payment. Generally speaking; good economic news tends to be bad interest rate news and vice versa.
A strong Employment Report with lots of jobs created, a real increase in hourly wages and a low unemployment rate without a labor force participation asterisk, is often the start of a tough day for interest rates. The financial markets tend to take robust jobs numbers and bolster economic forecasts, reckoning that growth will surely follow and it is now safe to chase riskier equity market assets for bigger returns.

Meanwhile, the safe haven credit markets drain from the flight-to-risky runoff and suddenly there are more Mortgage Backed Securities (MBS) than there are interested buyers. MBS prices move lower and yields move higher. Higher yields mean higher mortgage rates, higher mortgage rates mean higher monthly mortgage payments, higher monthly mortgage payments may alter a well-constructed home buyer decision tree. Every house on the market just got more expensive.

Financial markets prognosticators argue that economic forecasts are already “priced-in” to the markets well ahead of the actual report. That would mean of course that the jobs report release would have virtually no impact on trading activities, as long as the results are in line with the forecast.  This past Friday we saw numbers that were near forecasts and interest rates weathered the day virtually unchanged.
Once in a while the actual numbers reported are significantly weaker or stronger than expected and the financial markets can respond dramatically.  An unexpectedly weak jobs report has been known to trigger a rally in the credit markets and drive rates lower, while upward pressure on rates can result from unexpected strength.
Time was, the unemployment rate alone could be market moving, but now all of the economic data contained in the report is digested and assimilated into market force movements. Right now all eyes are on the Fed waiting to see when they will pull the trigger on that long awaited, hyper-analyzed short term rate hike.  Bets are placed on which economic release will be the last piece of the tipping point puzzle and the big daddy is the Employment Report. After seeing the results from this past Friday, the smart people seem to think that September will not be when the Fed’s generously accommodative monetary policy ends.

After 25 years of objective observation, I submit that the headline unemployment rate no longer has the muscle it once had.  It is and always has been just a telephone survey of selected households, until it was coopted as a political football on the eve of the 2012 elections. Now it has become more of a political tactic than an economic indicator and has lost the stand alone market moving credibility it once had.
The financial talking heads tend to gloss over the underemployed, the jobless claims and the newly-retired-because-no-jobs-exist, and talk about how great things are because the unemployment rate is 5.3% today. But ask the downsized class how they are doing after losing long-term employment in their mid-to-late fifties; find out what their prospects are like, show them that blockbuster 5.3% unemployment rate and see what they have to say.
And for now, get used to that higher monthly mortgage payment.

Monday, August 3, 2015

Dollar rises as Fed keeps interest rates on hold

Dollar rises as Fed keeps interest rates on hold

It is imperative to state that the unemployment rate has reached a seven year low of 5.3 percent which is being seen as a huge positive.

“They haven’t made up their minds, but… we’re getting that much closer to satisfying their criteria” for a rate hike, Hanson said.
But Baumohl says not to bet the farm that we’ll see any rate hike at the next meeting, because so many people have been anticipating an increase for the past year.
Although the September meeting, when Yellen is set to hold a news conference, is seen as the most likely time for a rate increase, some analysts think the Fed might wait until December.

The addition of a single word “some” in the sentence below is the strongest indication we are indeed creeping closer to a rate hike”,
Alan Ruskin, global head of Group of 10 foreign exchange at Deutsche Bank AG, said in an e-mail.
In determining how long to maintain this target range, the Committee will assess progress-both realized and expected toward its objectives of maximum employment and 2 percent inflation.
Gold fell more than 1 percent to near its weakest level since early 2010 on Thursday, as the dollar jumped ahead of US economic data that is likely to strengthen expectations for an interest rate hike by the Federal Reserve in September. Though the rate-setting committee has not raised rates, as expected by the markets, it, nevertheless, dropped some hints that the rate hike is not far away.
Chris Williamson, chief economist at Markit, said: “The improving job market, alongside the boon to households from low inflation and falling oil prices, has been key to the economy’s ability to sustain strong growth”. He believes a rate hike is still possible in September, but he said the odds are not as good following Wednesday’s statement. Treasury prices were largely unchanged after the Fed statement. U.S. The Fed still expects inflation to rise gradually toward its 2 percent target. The first-quarter figure was revised to a gain of 0.6 percent from a previously reported contraction.
At the same time, inflation has lingered below the Fed’s goal for three years, with the central bank’s preferred gauge rising just 0.2 percent in May from a year earlier.
Brent settled down 7 cents, or 0.1 percent, at $53.31 a barrel, while U.S. crude closed lower by 27 cents, or 0.6 percent, at $48.52. So they do not expect the monthly payroll numbers to shock on the downside.
“Economic activity has been expanding moderately in recent months”, it said in a statement.
“The most important thing the Fed is trying to communicate is not the timing of the first liftoff, but the pace, and continuing to try to counsel the markets about the pace being gradual”, said Roger Bayston, senior vice president and director of fixed income at the Franklin Templeton fixed-income group in San Mateo, California.