Rates Follow the Job Market

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Weekly jobless claims at 8:30 were expected to be up about 7K, as reported claims fell 18K to 324K. Claims are the lowest in over five years. The reaction juiced the stock market higher and put a slight decline in treasuries; MBS prices took the major blunt from the data. Claims last week the lowest since January 2008. The take away; employers are not firing as much, but equally are not hiring either. Too much uncertainty prevails about government regulations, health care costs and still an uneven consumer spending sector. With the exception of a one or two weeks claims in the last couple of months have been registering below 350K. At 9:00 30 yr MBS price -12 bp, the 10 yr note at 1.66% +3 bps. Other data at 8:30; Q1 productivity expected up 1.3%, was +0.7%. Q1 unit labor costs expected up 0.1%, increased 0.5%. The March US trade deficit a little better than thought at -$38.8B. None of these reports had any impact on markets. The ECB cut its base rate to 0.50% frm 0.75% as widely expected. Europe’s economies are struggling, no secret about that. Europe’s stock markets improved on the news. At 0.50% it is the lowest on record;  Draghi said last month that he stood ready to act if Europe’s economic outlook worsened, inflation plunged, economic confidence slumped and unemployment rose; all of which occurred in the last month. Today’s cut, the first since July last year, takes the ECB closer to exhausting its conventional policy tools, raising the prospect of a negative deposit rate or new non-standard measures. Now that all the scheduled data is out for the day, the focus through the rest of the day will be tomorrow’s employment report. March non-farm jobs were the weakest in over a year, up just 88K. The current estimates (guesses) are for jobs to have increased 153K in April and private jobs up 175K. Likely though the whisper numbers in the pits are for less gains after the ADP data on Wednesday was lower than forecasts. The unemployment rate that gets the headlines, although a bogus number in our view, is expected at 7.6% unchanged from March. People dropping out from looking for work are not considered in the unemployment percentage; add those in part time jobs,  temp jobs and those working at jobs at lesser skill levels and the real unemployment level is close to 15%. That said, everyone knows it  so the most important data is the number of jobs created, not the unemployment percentage.    At 9:30 the DJIA opened +44, NASDAQ +8, S&P +4; the 10 yr note -2/32 (6 bp) at 1.64% +1 bp. 30 yr MBS price at 9:30 -11 bp frm yesterday’s close. The remainder of the day should rather quiet ahead of tomorrow’s April employment report. The monthly report is notorious for its volatility, most of the time the data surprises in either direction. March job gains were so weak that the 10 yr note rate fell 6 bp and MBS prices increased. It is a safe bet that tomorrow will present another surprise, what we and most don’t know is in what direction. Technical remain bullish for bonds and mortgage markets; even a stronger than expected employment report won’t likely change the longer term outlook.