Rates could hardly be flatter this morning, as the bond market waits for tomorrow’s very important Employment Situation Report.

The only item watched by the financial markets today is the weekly Initial Jobless claims. It was anticipated to be 315k to 318k, but the labor department reported it higher at 321k. As an inverse indicator – a high number is bad for the economy and therefore good for rates – this high number should have brought rates a bit lower. Clearly it did not as investors are more concerned with Friday.

The 10-year Treasury is -.002% at 4.650%.

The only other items out are the Monster job advertisement survey which was higher than last month’s 177 with April at 185. That means there are more employers looking for employees. The Bank of England surprised no one as it left its lending rate unchanged at 5.25%.

Congratulations to the Britts for the arrival of their Sailors and Marines. The crisis past, oil prices will trade ‘normally’ again. The NYMEX crude price is $64.52/bbl. which is +$.14 or +.22%. The Robb Gasoline is at 211.8/ gallon. We are going to start watching these prices more as we approach the summer driving season. Prices are up enough to start impacting inflation.

The margins are very low, especially in the Twin Cities metro. The national margin is 58.80, The Twin Cities is 44.10. Normally in the summer driving season they are closer to 80.00. If something happens to snap gasoline prices the climb could be 40cents a gallon in a week’s time.

TOMORROW 06 APRIL, 2007

We are looking at one of the heaviest days in the monthly schedule of economic events. Worse, or better, the bond market closes very early on Friday. Bloomberg.com is reporting that The Bond Market Assoc. recommended early close 10:30 ET, 09:30cdt {14:30zulu}. Most banks are open, while the stock markets will be closed in honor of Good Friday. That early close gives the bond market only two hours to respond to the Employment Situation Report. There will only be a half hour to look at the less important Wholesale Inventories report. The bond market will be closed when Consumer Credit comes out.

The Employment Situation Report consist of four items; Average Workweek, Hourly earnings, Non-Farm Payrolls and the Unemployment Rate. The First two; Average Workweek and Hourly Earnings are not seen as too important, and seldom surprise rates. The next two items are headline items and VERY important. Payrolls and Unemployment often surprise and impact interest rates.

Average Hourly Workweek is expected to be 33.8, slightly higher than last months 33.7.

Hourly Earnings are predicted to be +0.3% to +0.4%, at or lower than last month’s +0.4%. Unemployment rate is forecast to be 4.5% to 4.6%, which is at or above last month’s 4.5%.

We think that Payrolls have the greatest chance to impact rates. We only wish we knew which way. Analysts have a broad range of expectations, looking for a 135k to 168k report. All are higher than last month’s 97k. This week’s ADP Report give hints that Payrolls will probably be at the low end, if not below the expectations. There is a chance that Payrolls could help us with rates tomorrow.

Wholesale Inventories will probably have little impact on rates. The market is looking for a +0.4% reading across the board. This is lower than last month’s +0.7%.
As we mentioned, Consumer Credit is out long after the bond market closes. If far outside of the anticipated $4.5b to $7.3b, it could influence rates on Monday, but that is HIGHLY unlikely.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com