Mortgage Rates See Small Gain Ahead of Jobs Report

Mortgage prices held a small gain today after the rally early this morning subsided a bit by the close of business today.  The 10yr and MBSs seemed to be heading for some big push to bring down mortgage rates, as the 10yr had dropped to 2.43% but could not hold and now unchanged on the day. Stock indexes marking time as is the rate market ahead of tomorrow’s January employment data. The Preliminary Q4 productivity this morning was a little better than forecasts, helping the bond market a little but it was, and is, tethered to the equity markets - stocks weaker rates better and vice versa.

Tomorrow’s employment data for job growth has been whispered higher after yesterday’s ADP January job growth was much stronger than forecasts, 246K against 168K expected. Every detail in the data is significant to form a better picture - job growth, the unemployment rate, U-6, labor participation rate but it is the average hourly earnings is what we see as the most significant of the details. (expectations; unemployment unchanged at 4.7%, NFP jobs 175K, private jobs 170K, average hourly earnings +0.3%).

We will have other data tomorrow with the January ISM services sector index and December factory orders.

Interesting chart from the WSJ on how S&P 500 companies have voiced or mentioned over his election during January. Cannot draw anything for the chart other than how many times companies have tied Trump to their forecasts and investment letters.

Technically the 10yr found resistance at 2.43% where a significant uptrend line crosses - the more significant resistance is 2.35%. There is still no reason to hold rate locks -sometimes it works, most times those who have tried have been what we used to call being whip-sawed - buying highs and selling lows. Still the case if the 10yr note is confined to the narrow range and unable to break through any technical resistance levels.

In summary, looks like this morning was a good lock opportunity for near term closings.  We revisited the lowest levels from the past five days only to see a reversal bring us to the highs of the day.  With NFP tomorrow you will need to have courage to float.  Other employment figures from earlier this week were strong, will it carry over to NFP tomorrow?  That’s the question.  Even if the number is strong my hope will be that our range holds and our worst case close would be 2.52 or 2.6 within the longer range.  I would feel bullish about bonds if this is as bad as it gets tomorrow.