Mortgage Rates Sideways Ahead of Jobs Report Tomorrow

Mortgage rates are moving sideways again today as we saw overnight the 10yr note yield hold well after declining to its resistance yesterday at 2.32%. This morning in very early activity trading did have it open at 2.35% where it has stood most of the morning.  MBS prices are steady as well with very little movement either way as we approach the Noon hour.

Jobless claims no longer as much of an issue as it was for years, but still deserve a look. Despite an unexpected uptick for Puerto Rico, initial jobless claims fell 2,000 in the December 2 week to a lower-than-expected 236,000. The 4-week average is down less than a thousand to a 241,000 level that remains about 10,000 above the month-ago trend and, though low, nevertheless points to less strength for tomorrow's monthly employment report.

The November JOLTS layoffs increased to 35,038 from 29,831 in October. This is the highest total in seven months and, though still at a historically low level, does hint at softer-than-expected results for tomorrow's monthly employment report. Health care had the highest total for a second month, with services and computer products also showing sizable totals.

Nobel Prize winner Richard Thaler, of the University of Chicago Booth School of Business, talking today about the tax cuts being debated. He believes the package will increase inequality and opportunities for tax avoidance. “If we concede that one of our greatest problems is rising inequality, a tax reform that has the primary effect of increasing inequality seems to be misguided.” His main concern is the part of the package that deals with “pass-through” businesses.  Taxes on pass-through companies’ income (sub S corps and partnerships) are paid by owners in their individual returns and are currently higher than corporate taxes. He worries lawyers will work a way around paying taxes. His concerns, though, will not sway Republicans.

Trump’s decision to move the US embassy to Jerusalem is increasing mid-east tensions. The Islamist group Hamas urged Palestinians to abandon peace efforts and launch a new uprising against Israel in response to President Trump's recognition of Jerusalem as its capital. US and global markets not reacting to the change yet, as it will take two or three years to make it happen. In the meantime, the Trump administration is asking Palestinians and Israeli officials to restrain their reactions. Three of the great monotheistic faiths: Judaism, Christianity, and Islam have sites of great religious significance there.

Although stock indexes opened generally flat, there is little reason to believe a major decline is coming as long as markets believe a tax cut bill will be worked out and signed by President Trump. Republicans remain confident (at least to the press) that they will have a completed bill by Christmas, now 18 days away.

Yesterday, the 10yr tested and failed to push through its technical resistance at 2.32%. To have that happen, stock indexes must experience selling whether on tax cut worries or some kind of unexpected event (a Black Swan). Not expecting either now, but we doubt any significant price improvements are ahead. The November employment data out tomorrow should keep markets tame today.