Mortgage Rates Jump After Jobs Report

Mortgage rates leaped significantly higher today, as the October employment blew the doors off this morning.  Typically released on the first Friday of every month, the Employment Situation is the most important piece of economic data.  At the very least, it has more power to move financial markets than any other economic report.  It certainly flexed those muscles today.

It took about 30 seconds after the report was released for markets to begin believing the Fed now has the ammunition to make its move at the December meeting. Certainly the odds have changed but still it its fluid, as it has been for months. Markets and media agog with the increase in jobs in November but how strong is it really? Take the last three months of non-farm jobs and the average over that period is an increase of 187K jobs a month and is still well off the job increases we had in 2014. Economists and Fed officials out today commenting that the Fed is now going to increase rates - but each one ended with the usual caveat that it still depends on the future coming data - yes, but.

Should the Fed move in December, or wait another month or two? What is the rush? The Fed could wait and not be worried that inflation will run wild, but after months of being wishy-washy and recently beginning to take increased heat for the continual mixed comments from those regional Fed Presidents, all appointed politically, look for the Fed to move sooner than waiting. The increase in wages if it becomes a trend, prices will start to increase and profits will be hurt. Could be a negative for equity markets down the line; not now but it is going to be the next hurdle for markets in next year. This should leave all of us with one unanswered question, and the one that will be debated n markets next week - is the wage improvement in October a one off event, or the beginning of a trend?

Not unusual for a monthly report to roil markets, and not unusual that the report sets in motion uncertainty. Do not lose track of the reality that for the last two plus weeks interest rates have been increasing - stay with how markets are trading more than trying to sift through all of the comments from us or the many other analysts out there - this truly a moving target now.  Presently the bond market is moving to discount a Fed increase and the bond and mortgage markets are bearish technically and now fundamentally. Next week will be volatile - take advantage of any price improvements we see next week.

In summary, the October Jobs Report came in hot this morning beating all expectations handily and leaning more favorably to a December Fed rate hike.  The ensuing selloff in the Bond Market was swift but could have been much worse since much of the decline in bond prices had already taken place.  With the uncertainty of the first hike all but removed now I think markets are likely to settle in to a sideways trading range.  So, for longer term lock periods I think floating is possible but I still recommend locking it up for shorter term (15 days or less) closings.  And, be ready to pull the trigger fast if something fundamental changes.  As always, your tolerance for risk should drive your decision making.