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Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
4:00 EST – Our benchmark FNMA MBS 6.00 January Coupon is up +75 BPS with 60 minutes left to trade.
Jobs, Jobs, Jobs: Its Big Jobs Friday! You can read the official BLS release here.
Jobs:
December Non Farm Payrolls (NFP) added 223K vs. est. of 200K
November NFP was revised lower from 263K to 256K
October NFP was revised lower from 284K to 263K
The rolling three month average is now 247K
Wages:
The Average Hourly Earnings Rate increased by 9 cents to $32.82
MOM Average Hourly Earnings rose by 0.3% vs. est. of 0.4%
YOY Average Hourly Earnings rose by 4.6% vs. est. of 5.0%
Employment:
The headline Unemployment Rate dropped to 3.5% vs. est. of 3.7%
The U6 Underemployment Rate dropped to 6.5% from 6.7%
The Labor Force Participation Rate Increased from 62.1% to 62.3%
Rosie the Riveter: November Factory Orders were tanked by -1.8% vs. est. of -0.9%
Services: The December ISM Non Manufacturing PMI (2/3 of our economy) showed contraction for the first time in almost 3 years! Falling below 50, 49.6 vs. est. of 55.0 so that is a pretty big miss. Employment also dropped below 50 to 49.8 and New Orders really tanked, dropping to 45.2 vs. est. of 55.0
What a day! Wages slowing, the ISM services sector, the strong sector went into contraction. Dec employment rate was thought to be 3.7% unchanged from Nov, as released unemployment declined to 3.5%. Non-farm jobs increased 233K against 200K expected; private jobs +220K better than 175K expected. Average hourly earnings estimates +0.4% m/m dropped to +0.3%, yr./yr. 4.6% with estimates at 5.0%. The labor participation rate at 62.3% from 62.2% .Wage inflation slowing, unemployment declining and jobs stronger than expected. The initial reaction, prior to 10:00 am wasn’t much, the 10 declined just 1 bp and MBS prices at 9:30 +16 bps. Then came 10 am, the Dec ISM services sector index, Dec ISM services sector index expected at 55.0 from 56.5; the index hit at 49.6, a contraction, employment 49.8 from 51.5, prices pd 67.6 from 70.0, new orders 45.2 from 56.0. Based on ISM the economic outlook slowing, the combination of employment and ISM exploded the interest rate markets. The 10 yr. fell 16 bps, MBS prices +78 bps at 4 pm.
The Fed still talking tough, but the economy is slowing, wages in Dec were weaker than thought, although that may be an outlier with temps working holidays at lower wages. The Fed will keep it up, threatening higher rates until the evidence is clear; markets will front-run based on data, the Fed will follow One set of data won’t sway policymakers, though, and Fed Chair Jerome Powell has emphasized the need to see a sustained downward trend in inflation. In some respects, the December jobs report offered a best-case scenario for the Fed — Americans keep their jobs, but inflationary pressures of earnings are easing — giving policymakers room to slow the pace of interest-rate hikes; 25 bp increase on Feb 1st. Global inflation also waning with better weather than was expected a month ago, no increases in energy prices seen in Europe as warmer weather in the US and Europe temper higher energy prices.
It is safe to expect mortgage rates at or below 6.50% with inflation is slowing. Where rates will increase is at the low end of the curve, the 2 yr. note and under. The 2 fell 10 bps today, the 10 16 bps lower: 3 mo. bill at 4.62%, over 100 bps higher than the 10.
The dollar tanked today with weaker economic data driving gold higher, +$32.00.
Next Week: Monday Nov consumer credit. Tuesday Nov wholesale inventories, $40B 3 yr. note auction. Wednesday weekly MBA mortgage apps, $32B 10 yr. note auction. Thursday Dec CPI, weekly claims, $18B 30 yr. bond auction. Friday Dec import and export prices, U. of Michigan md-month consumer sentiment index.
This Week: The 10 this week 33 bps lower, FNMA 5.5 30 yr. coupon this week increased 115 bps. DJIA this week +483,NASDAQ +102, S&P +55. Gold increased $44.00, crude oil down $6.67. The dollar index slightly stronger this week, the index +0.38. Bitcoin +398.
