Delmar Financial

Price of mortgage-backed securities progressively moved higher as the day wore on yesterday, after all was said and done loses from the prior day were recovered.   The improvement in price allowed most lenders to reprice for the better by day’s end.  Helping fuel the turnaround was the stock market moving off its highs of the day and benchmark treasury yields moving lower. The 10yr Treasury note closing at a yield of 3.54 after hitting 3.60 earlier in the day.    Most of the fluctuations in financial markets appeared to traders setting themselves up for today: the biggest impacting report of the month, the Employment Situation report.

 

The U.S. Department of Labor released their monthly Employment Situation report this morning. The Non-farm payrolls report serves as the benchmark barometer for the health of the labor market.  A strong economy is very dependent on a healthy labor market as consumers fuel economic growth. If consumers are without jobs, they are unlikely to spend which stunts economic growth.

 

Last month’s report came in much better than expectations regarding the number of jobs lost, 345,000 versus economist expectations for a loss of 530,000 jobs.  This morning the opposite occurred as job losses were much higher than expected. In June 467,000 jobs were lost, when only 360,000 were expected!  Last month’s number was however revised slightly better to 322,000. 

 

The unemployment rate came in slightly lower at 9.5% when expectations called for 9.6%.  Also as part of the employment situation we get a measure on consumer income.  First, the hourly work week declined to a 27 year low of 33.0 hours versus economist expectations for 33.2 hours.  This means that on average, people are working less hours which equates to a smaller pay check which would lead to less consumer spending, bad for the economy.  Lastly, the hourly wages came in lower than expectations at a 0.0% monthly increase against expectations of a .2% increase.  With wages flat, there is no concern of wage based inflation at the moment.  So, people are working less hours and income is flat. Overall this report was bad for stocks, good for bonds, and therefore a positive event for MBS.

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