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Crestico Funding

Friday 12-07-2012 Daily Market Report

Friday, December 7, 2012 - Article by: Crestico Funding - Message

This morning we read;It is the first Friday of the month; the day when chaos reigns. The Nov employment report, as most BLS reports, didn't disappoint with volatility and numbers that missed estimates by a wide margin on unemployment and job creation. Estimates were "certain" non-farm job increase would be +86K, non-farm jobs increased 146K; private job increase was widely believed to have increased 90K, private jobs increased 147K. The Nov unemployment rate was also widely expected to have increased to 8.0% frm 7.9% in Oct, the unemployment rate fell to 7.7%, the lowest level since Dec 2008. Revisions to previous months had jobs revised lower by 47K.The poll of households that is used to calculate the jobless rate, showed that 369K people were not at work because of bad weather during the survey week. The average of the last 10 Novembers was 70,000. The Labor Department said it conducted the survey a week earlier than typical because of the Thanksgiving holiday. The participation rate, which indicates the share of working-age people in the labor force, fell to 63.6%, from the prior month's 63.8%. Employment at private service-providers increased by 169,000 in November, today's report showed. Payrolls at construction companies dropped by 20,000 workers. Average hourly earnings climbed to $23.63 from $23.59 in the prior month. The average work week for all workers held at 34.4 hours. Oct employment numbers were revised down 51K but it was all in government jobs.The increase in jobs and decline in the unemployment rates will be questioned through the day. Analysts and economists will diminish the report and imply the data for Dec will reflect sizeable lower revisions when the Dec report is released on Jan 4th. The rationale to somewhat dismiss the Nov data is based on Sandy, although the BLS said Sandy didn't have much of an impact on the data.Prior to the data at 8:30 the 10 yr note yield was 1.57%, MBS prices +3 bp; US and Europe stock markets were weaker. The stronger jobs took Europe's markets higher and turned US stock futures higher. At 9:30 the DJIA opened +41, NASDAQ +13, S&P +5; the 10 yr note yield after falling to 1.57% at 1.62 +3 bp, 30 yr MBS price at 9:30 -15 bp frm yesterday's close.At 9:55 the U. of Michigan consumer sentiment index, expected at 83.0 frm 82.7, it is another wild surprise, the index fell to 74.5. The drop is hard to explain since the past two months the index has been around the 80 level. That kind of drop is very likely going to be revised higher when the final sentiment index for Nov is released on the 21st. There was no reaction to report, the employment report still be debated. According the U. of Michigan folks the decline in sentiment was concentrated on households with incomes over $75K, implying fears that taxes may go up next year.Later this afternoon at 3:00 pm, one of our favorite reports, consumer credit data (this one from Oct), forecasts are for an increase of $10.0B frm $11.4B. Not so much interested in overall credit as much as revolving credit (credit card use).Over the pond; in Germany their economy is slipping and possibly approaching recession as the rest of Europe suffers in prolonged recession with the debt crisis. The Bundesbank cut its 2013 projection to 0.4% from the 1.6% predicted in June and said the economy will grow 0.7% this year, down from its previous forecast of 1.0%. The economy will contract in the fourth quarter and stagnate in the first, the central bank said today. Yesterday the ECB left rates unchanged at 0.75%.While the 10 yr once again has failed at key technical resistance levels today, we don't expect rates are going to increase much. Today's employment report will likely be discounted a little as the day progresses. With Europe in recession and Germany headed that way; the US economy is muddling along but no recession on the horizon. The Fed will likely continue to buy treasuries and will continue its MBS purchases. The FOMC meeting is next Tuesday and Wednesday, we expect specifics from the meeting on how much the Fed will continue to purchase. The 10 yr note will find support at 1.65% and likely to fail at 1.57% through the rest of the year. A narrow range that in terms of mortgage rates is essentially flat. No reason to float now if closing are within the next two weeks; longer outlook is better so far. A deal on the Cliff before the end of the year may push interest rates higher if the stock market rallies on a deal.

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