HEAVY SUSPENSE, SHOCKING SCENES, DEEP INTRIGUE…The latest Hollywood blockbuster? No, no…Friday’s Jobs Report! The highly anticipated Jobs Report arrived with a blast, and optimists and pessimists alike dropped their popcorn and had a startling look at the numbers. New job creations had been anticipated at 120,000… whispers in the trading pits had been for as high as 200,000…the real number? A whopping 308,000 new jobs created, the biggest number since April of 2000. Bond prices fell off a cliff within seconds, and mortgage interest rates worsened sharply, increasing by .25 to .375% on Friday alone.

And even more good news on jobs - with revisions to past reports, first quarter now shows total job creations of 513,000. With 308,000 new jobs for March far exceeding anyone’s estimates, this will definitely get the Fed’s attention. If subsequent Job Reports continue to show healthy gains to form a strong trend in job growth, then Fed interest rate hikes will not be far behind. Combined with the Bank of Japan halting their Bond buying frenzy, it’s not a pretty outlook for Bond prices and mortgage interest rates in the days to come.

And the intrigue? Speaking of Hollywood, Friday morning brought a scene straight out of the movie “Trading Places” starring Dan Ackroyd, Eddie Murphy and Jamie Lee Curtis, where a character named Mr. Beeks steals inside information relating to the condition of the orange crop before its formal release. On Friday morning, the Jobs Report and its market moving employment data was somehow leaked early on Yahoo Finance, prior to the Labor Department’s official release! The leak is now being investigated, and the search is on for the new “Mr. Beeks”.

IS THE SHOW OVER? THE BANK OF JAPAN APPEARS TO BE FOLDING UP THEIR WALLET AND HEADING HOME…AND THEIR “INTERVENTION” BUYING OF US BONDS, WHICH HAS HELPED TO SUPPORT LOW INTEREST RATES, IS OVER. WHAT DOES THIS MEAN TO YOU? GET THE FULL SCOOP IN THIS WEEKS MORTGAGE MARKET VIEW.

Friday’s gut-wrenching cliff dive by Bonds violated multiple support levels and took Bond prices down near their 200-day moving average, a very long-term support level. This will now serve as the “line in the sand”, and Traders will be watching closely this week to see if this support can hold. Remember, the past several Employment Reports have set the trend for the following days and weeks for prices. This bodes very poorly for interest rates during the first half of April. Bottom Line: Mortgage interest rates are sharply higher this week over last, and could move higher still unless this support holds – But don’t count on a happy ending, as rates appear to be headed higher.

Take a peek at the chart below, as you won’t see one like this very often. Friday’s drop was the largest one-day decline seen since July of last year, and the long red candle on the very far right gives a good visual of how brutal the decline was.

The Buck Stops…In Tokyo?

Harry Truman may have coined the phrase “The Buck stops here” – but it was the Japanese who slowed the decline of the US Dollar over the past year. While the US Dollar is now strengthening, it had lost a significant amount of its value against the Yen and Euro during the past year.

How does a weak Dollar affect you?

A weak Dollar may not be a good thing if you plan a trip to Europe or the Far East, because it costs more US Dollars to buy foreign goods and services. But while that is not so great for your summer vacation, it can be very helpful to American business. When the Dollar weakens, US goods are more attractive to foreigners because their currency has more buying power in the US. That helps sales of US goods and services. A weak Dollar also means that American families would see a price benefit in buying domestic products as well. Goods from foreign countries, like automobiles, will effectively cost more because it takes more US Dollars to buy the same product. American cars, as an example, gain a price advantage without changing a thing in their actual product. All of this makes a very positive impact on the US economy.

While a weaker Dollar is a good thing for the US economy, it has the opposite effect in Japan and Europe. So what do foreign nations do to reverse this? They attempt to prop up the Dollar by buying Dollar based securities. The Bank of Japan (BOJ) has purchased hundreds of billions of Dollars during the past year in an effort to buoy the Dollar and halt its slide. They do this via the purchase of US securities like Bonds. This added demand for Bonds causes their price to rise, which then causes interest rates to decline. This has helped interest rates remain very low despite strong economic reports, signs for continued strength in the US and a healthy bull market in US stocks.

But wait…Just recently, reports show that Japanese exports are doing just fine. As a result, the BOJ has stopped its US Dollar buying spree. This translates to less demand for Bonds, just at a time when it looks as if the US economy may be firing on all cylinders, now that job growth appears to be flexing some muscle.

This should cause Bond prices to decline and contribute to mortgage interest rates moving noticeably higher down the road.

Take a deep breath and relax – it will be a very slow week on the economic news front. The only reports that might have much of an impact this week will be the ISM Services report today and the Initial Jobless Claims report on Thursday. This week does have several religiously significant dates, most notably Passover on Tuesday and Good Friday. In observation of these holidays, the Bond market will have an early close on Thursday and be closed entirely on Friday.

Remember, as a general rule, weaker than expected economic data would indicate the economy is not improving as quickly as expected, and could cause mortgage rates to improve. Positive data would indicate a strengthening economic climate, and could cause mortgage rates to gradually climb higher.

For the week of April 5 – April 9, 2004