Mortgage Rates Steady After Good Jobs Report Numbers

Prior to the June employment data his morning, the 10yr note yield was up 3BPS from yesterday to 2.39%, but MBSs pricing was positive (better) than yesterday’s close.  The June unemployment rate, expected unchanged at 4.3%, BLS said unemployment increased to 4.4% - this was nothing to be concerned with, a deviation in the data is normal. Non-farm payrolls were expected up 170K, as reported +222K and in revisions 47K more jobs were added over the previous two months. Average hourly earnings increased 0.2% against forecasts of +0.3%, but May earnings were revised lower, from +0.2% to +0.1%. Yr./yr. Average hourly earnings were forecast at +2.6%, but up 2.5% as reported and unchanged from May. The labor participation rate increased to 62.8% from 62.7% in May - essentially flat-lining that has shown no trend, in 2007 before the financial crisis, the labor participation rate was at 66%. Manufacturing jobs +1K, weaker than 6K estimates. A wider perspective - the average job increases over the last six months 187K, the average of the six months prior, to 180K.

The reaction in the bond market was fractionally better as the 10yr improved to 2.37% but MBSs went negative. The three key stock indexes increased on the better job growth. Overall, the employment data was a plus for the economy and is strong enough to continue the view that economic growth is on track with most economists’ and Fed officials’ thoughts. The data will keep the Fed’s plans for beginning to taper and increasing the Federal Funds rate. September is the meeting that most now expect an official taper to be announced (not reinvesting principal payments back into the markets).

G-20 meeting begins today in Hamburg. Angela Merkel appealing to member states to seek compromise in disputes over trade, climate change, and migration. Protestors rioting. Trump and Putin shook hands but haven’t had their bilateral meeting yet. The idea of better relations between the two countries, once a positive hope, has been damaged somewhat. According to a Putin spokesman, the two meeting is a step forward in itself after increasing tensions since Trump’s election - the best Russia thinks now is that the meeting is an achievement at best.

Crude oil, volatile yesterday but ended +$0.14 yesterday after trading $1.00 higher earlier in the day. This morning crude down $0.87.

Inflation? Not seen yet but the Fed continues its belief that inflation is just around the corner. That corner continues to be hard to reach, yet the Fed won’t be dissuaded in its anticipation of 2.0% inflation. Meantime, markets, like lemmings, continue to believe in the Fed (and other central banks). The Fed has a history of missing the big picture; it missed the housing bubble with Greenspan saying then he couldn’t see it coming, Bernanke said in 2007 the housing bubble was under control and not a financial market threat. Just saying, the Fed is not God, but hard to tell that to markets now.

Nothing has changed in my analysis, as everything right now looks bearish. Best to treat it that way in terms of the near-term outlook. Markets are not showing any discernable concern over North Korea, and equity investors still are on a buying binge. Given the current circumstances, unless geopolitical fears increase or the stock market buckles, I cannot see rates will decline much from current levels. Best we can see now is a slow increase in rates. Other than a lack of inflation most US and global economic data is improving.