Mortgage Rates Steady in Front of Jobs Report

The bond and mortgage markets held quite well today in the face of ADP jobs 70K more than forecasts and expectations. May ISM manufacturing index was also slightly better than thought. In less than 2 weeks the Fed is widely expected to increase the FF rate by 0.25%.

April construction spending this morning was a lot weaker than thought but March revisions took the sting out making the two months about in line. The difference is, the April data is Q2 while the upward March revision is in Q1 - focus now is on Q2.

President Trump decided to withdraw the U.S. from the Paris climate accord, as he said he would during the campaign. Huge differences of opinion about the decision. Trump wants a better deal and the us is also the leader in climate change; better than Europe burning more coal and better than China that lives with smog. The US has switched much of the energy use to non- climate damage natural gas.

Support in bonds today partly over another terrorist attack, this time in Manila. Not much detail so far. The bond market still sees low inflation and less growth keeping rates at these low levels.  

Tomorrow the May employment report at 8:30. Today’s ADP job gains have increased the forecasts prior to this morning. Early estimates unemployment 4.4%, NFP jobs 185K, private jobs +172K, average hourly earnings +0.3%; wages up 2.6% yr/yr up from 2.5% in April.  There are no estimates for U-6 and the labor participation rate, both of which are critical.

The DJIA made another new high today. 

Very impressed how well bond and mortgage rates are holding, as the models and other technical indicators remain bullish but continue to be touchy. Technically we should float, but most readers have short horizons and I have stressed that if you are close to closing. 

In summary, despite some bullish economic data, bonds are holding up relatively well.  We do get non-farm payrolls tomorrow which is the most important data point each month.  A better than expected number, will pressure bonds higher but need to keep an eye on the hourly pay part.  I think investors are more concerned about wages than the number of jobs created.