Santa Fe Las Campanas Bond/Stock Market Report

Friday’s bond market opened up sharply following extremely favorable results from today’s major economic report. The stock markets are reacting as we would expect them to, with the Dow down 195 points and the Nasdaq down 45 points. The bond market is currently up 24/32, which should improve this morning’s mortgage rates by approximately .250 of a discount point.
The Labor Department released August’s Employment report early this morning, giving us some insight into the condition of the labor market. They announced that the unemployment rate remained unchanged at 9.1% last month, as expected. The big news came in the payroll number that showed no payrolls were added or lost during the month. This was the weakest reading in payrolls in 11 months and even some of the less glitzy numbers like average earnings were well below forecasts. All this points towards a weak, at best, employment sector.
Overall, the report was great news for the bond market and mortgage rates because it raises many concerns about the economy. It has even caused some discussion about the unspoken word (Recession). There are some theories floating out there that say the 0 jobs number is more a result of temporary influences such as labor strikes, natural disasters and the show that Washington put on for the world when dealing with the debt ceiling. All may be true, but with the housing sector still in the tank, any bad news raises significant concerns in the markets about just how soft the economy is right now. This will lead to plenty of anxiety over the next couple weeks as investors prepare for the upcoming economic data, particularly this month’s Employment figures.
That could do well for the mortgage market.  This morning’s report did nothing to concern me, at least not in the immediate future. The benchmark 10-year Treasury Note is close to testing 2.00% again (2.05% today), which may be a hurdle that we will be watching closely. The last time we saw its yield this low, it was unable to break below that level. Therefore, I remain cautiously optimistic towards mortgage rates, but that caution is more for the immediate future than it is for longer-term periods.
Next week is pretty light in terms of relevant economic reports scheduled for release. The financial and mortgage markets will be closed Monday in observance of the Labor Day holiday, so we will have only four trading days. Neither the stock or bond markets are closing early today ahead of the holiday, but it is fairly safe to assume that many traders will be heading home early to start the long weekend.