Holding Upward Rate Bias

Volatile rate week but sticking with my upward bias ahead of tomorrow’s BLS number.

Expectations vary wildly from 180-275k new nonfarm jobs created. I’m placing my bet around 247k which would continue the optimistic U.S. sentiment, and send the benchmark 3.5% Fannie Mae MBS coupon below it’s 50-day moving average, nudging rates up.

That would be a continuation of today’s selloff which was triggered by news that most of Greece’s bond investors are coming on board to a bond swap deal whereby they’ll exchange existing bonds for new ones and take about 75% losses in the process. This deal is a pre-condition of bailout funds they need by March 20.

That’s why I say a better jobs report would nudge rates up, but they’re unlikely to spike since uncertainty about Greece’s machinations ahead of March 20 will keep a lid on selling safe haven assets like MBS—that and longer-term facts like: this doesn’t solve Greece’s root issues, and even larger debt trouble looms for other Eurozone nations.

Like most, I’ve had the thread on this deal then lost it a few times. I’ve had a long week and can’t write about it tonight. The FT is coming strongest tonight, so here are two good reads from them:

FT: Greek Debt Swap Support Close To 95%

FT: Greek Debt Deal Q&A

I’ll also acknowledge the incredibly hard task of estimating jobs reports and market reaction to them. As the old joke goes: rates will go up or down. But my message to clients (abbreviated above) has been consistent all week, hard as it has been to stick to it.

Also below is Dick Lepre’s Fundamentals rundown since yesterday. And we’ll both chime in with jobs report commentary late morning Pacific time.

Initial Jobless Claims
-362,000 (seasonally adjusted) for week ended March 3

-Up 8,000 from previous week’s revised 354,000

-4-week moving average 355,000, up 250

-Third straight weekly rise, but as WSJ said: “the weekly figures are still well below 400,000, the benchmark economists use to gauge whether hiring is picking up”

-Unadjusted claims were 365,754 up 31,513 from the previous week. Unadjusted claims in the comparable week in 2010 were 407,299.

-This report doesn’t count jobs added. Tomorrow’s BLS report does that. The jobs market had improved from its dismal state but is still not indicating sufficient growth of GDP and Treasury revenue to anywhere near the level of expenses.

Full report and chart below.

Challenger Job Cut Report
-Announced layoffs for February 2012 were 51,728. Previous was 53,486.

ADP Private Jobs (February 2012)
-Private Jobs +216,000, higher than estimates of +203,000
-January was +173,000, and December was a blowout +325,000
-ADP processes payrolls for about 23m million employees throughout the U.S.
Full report

MBA Mortgage Applications (week ended 3/2/2012)
-Purchase Index, Week/Week +2.1 %
-Purchase Index, 4-Week Moving Average -0.5%
-Refinance Index, Week/Week -2.2 %
-Composite Index, Week/Week -1.2 %

Worker Productivity and Labor Costs (4Q2011)
-Nonfarm productivity – Quarter/Quarter +0.9%. Previous quarter was +1.8%
-Unit labor costs – Quarter/Quarter +2.8%.
-These are Seasonally adjusted annual rates. Productivity is GDP/hours worked.
-Growth in Worker Productivity has declined the past seven quarters. Lack of substantial gains in productivity means more people needed to produce that which comprises GDP. This is good for jobs but bad for inflation.