Mortgage Rates Improve After Jobs Report

In my report last night, I noted how unpredictable the monthly employment normally is each month. Today’s January data did not disappoint in that regard. Following in the steps of Wednesday’s January ADP job growth that was 78K more jobs than forecasts (+32%) the BLS reported NFP jobs +227 against previous estimates of 175K, private jobs +237K against 170K estimates. Over the past three months, job growth has averaged 183,000.   A very mixed picture in January that initially sent both stock indexes higher and interest rate prices higher. The unemployment rate expected to 4.7% unchanged for the last two months, increased to 4.8%.  

It really is not all about the new jobs that most economists are looking at, but the average hourly earnings is the most important detail in the basket of employment information. Average hourly earnings are much weaker than markets, analysts, and economists have been thinking and believing. January average hourly earnings were widely expected to have increased - wage inflation was certain according to most and one of the key leads for the Fed’s concern inflation was going to increase. Even though January was lower, December was revised higher, but not enough to overcome the miss today.

Stock indexes rallying, the interest market yield declining. The employment report had good news for everyone. Low average earnings lessen thoughts the Fed may increase the FF at its March meeting, currently out the window. The share of Americans who had a job or were looking for one in January was 62.9%, up from 62.7% in December. A broad measure of unemployment and underemployment, known as the U-6, was 9.4% in January. That was its highest level since October; discouraged job-seekers who have stopped looking for work, other people marginally attached to the labor force, and part-time employees who say they want but cannot find full-time work.

Two more data points showed January ISM services sector index declined more than anticipated as well as December factory orders showing a decline versus the anticipated increase.

Mortgage market and treasury volatility are already high this morning as stocks and interest rates are better. One or the other will capitulate somewhat through the rest of the day. The 10yr has short term technical resistance at 2.44% where a long term valid trend line has held any improvements this year (yields). Even a break below the trend line the main and very strong resistance for the 10yr is 2.35% and that level will not likely be violated under the current circumstances.

I wanted to get this report out fast and at 10:15AM, the MBS are a robust +26BPS and the 10yr is at 2.44%.  Prices have improved, but stay close to the markets to see if you decide not to lock in these gains.  I do not know if the rewards outweigh the risk if you feel that this floor will crumble with this news today.