Market update

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Friday’s bond market has opened down sharply following the release of April’s Employment report that showed stronger than expected results. The stock markets are reacting positively to the same data, driving the Dow up 144 points and the Nasdaq up 43 points. The bond market is currently down 30/32, which will likely push this morning’s mortgage rates higher by approximately .500 - .625 of a discount point over yesterday’s morning pricing. We may also see another increase later in the day if stocks extend current gains or bonds fall further. The Labor Department gave us this morning’s major news at 8:30 AM ET. They announced that the unemployment rate slipped to a four year low of 7.5% last month while 165,000 new jobs were added to the economy. Analysts were expecting to see 7.6% and 155,000 jobs, indicating a bit stronger employment sector last month than many had thought. However, the huge reaction in the markets is partly due to significant upward revisions to February and March’s figures that points towards a much stronger sector over the past couple months than the data initially indicated. Revised estimates showed that an additional 114,000 jobs were added during February and March than previously announced. The employment data itself is not overwhelmingly strong. At best we can consider it to be "not bad." But as predicted, the lack of much weaker than expected numbers was a disappointment to bond traders and a reason for stock traders to buy. The result is exactly what I suspected- a stock rally and a sizable bond sell-off that is causing a spike in this morning’s mortgage rates. This is more likely just a knee-jerk reaction, although it has broken the recent momentum in bonds and erases a good part of if the improvements in rates during that timeframe. It is too soon to say whether this will be the beginning of an upward trend in rates or just a flash that will be corrected in the near future. Until that is more clear, I strongly suggest still maintaining a cautious approach towards mortgage rates. March's Factory Orders data was also posted this morning, revealing a 4.0% drop in orders at U.S. factories for both durable and non-durable goods. This was a larger than expected decline, hinting at manufacturing sector weakness. Unfortunately though, the markets are much more focused on the employment numbers than this data, meaning it has had no impact on this morning’s trading or mortgage pricing. Next week brings us little to be concerned with, but that also means little to fuel a bond rally. There are no relevant monthly economic reports on next week’s calendar. In fact, the only things standing out are a couple of Treasury auctions and a public speaking engagement by Fed Chairman Bernanke. There is nothing scheduled for Monday that is likely to influence mortgage rates. Look for details on next week’s events in Sunday’s weekly preview. If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now...       Alan Russell 161 South San Antonio Rd. | Los Altos, CA 95022 Ph: 650-947-2296 | Fax: 408-335-1118 alanrussell@princetoncap.com CLICK HERE TO STOP RECEIVING OUR REPORT