January 4th, 2019 8:56 AM by Richard Sardella MLO.100007700/NMLS 233568
Even before the 8:30 am ET release of Dec employment data the treasury market was under pressure, the 10 yr at 2.62% up from 2.56% yesterday, MBS prices -27 bps. US stock indexes before the employment data +290 points on the DJIA after plunging 660 points yesterday.
At 8:30 Dec employment was a lot stronger than most all forecasts. The unemployment rate did increase from 3.7% to 3.9% (better than 3.7% forecasts). Jobs however exploded; NFP jobs +312K (expectations 180K) and Nov jobs revised to 176K from 155K originally reported. Private jobs +301K (expectations 175K) and Nov private jobs revised to 173K from 161K. Average hourly earnings, the most closely watched ingredient in the data, at +0.4% (expectations +0.3%); yr/yr earnings were thought to be 3.0% but increased to 3.2%. Manufacturing jobs +32K (+19K expected). Construction posted an outsized 38,000 increase with mining, a much smaller industry, rising an in-trend 4,000. Retail trade rose a solid 24,000, trade & transportation a solid 34,000 after a 68,000 November surge, and professional & business services gained a very strong 43,000 with temporary help, which is in demand, up 10,000. The labor participation rate, a strong positive in the report, rising 2 tenths to 63.1% which is also better than expected (62.9%).
No matter the spin, the Dec employment data brings back the idea of more interest rate increases this year if January data holds. The initial reaction to the report added 1 bp to the 10 yr note, from 2.62% to 2.63%; MBS prices increased 4 more basis points from the level before the employment data.
At 9:30 the DJIA opened +330, NASDAQ +95, S&P +32. 10 yr note 2.63% +7 bps after declining 10 bps yesterday. Fannie 4.0 3 yr coupon at 9:30 -31 bps from yesterday’s close and +3 bps from 9:30 yesterday.
For weeks, the incoming economic measurements in the US and China (as well as all emerging markets) have been slowing, the stock market for two months going down. The last two market days have rattled investors and markets even more with China reporting its PMI manufacturing index falling under 50 into contraction and yesterday’s sour Apple release of lower Q4 earnings. The outlook expected to weaken more as the cost of iPhones in China run into sticker shock, $1,000.00 finally exceeded the maximum people will spend; we see it as the same issue that will face Apple in the US. Apple is the face of the markets along with other tech stocks, it's seen for the moment as another indicator of economic morose.
China's central bank said on Friday it was cutting the amount of cash that banks have to hold as reserves for the fifth time in a year, freeing up $116 billion for new lending as it tries to reduce the risk of a sharp economic slowdown. China said it would hold trade talks with the United States; President Trump has set March 30th for a deal or more tariffs. Its economy now being directly impacted by the current tariffs, adding to the belief that China will be more willing to get something acceptable done on trade. More than trade, the theft of US technology is at stake, and the US must stop China from its thefts and brazen attitudes that demand US companies in China share the technological advances (or they will continue to steal it).
Next up today, Jerome Powell, Janet Yellen and Ben Bernanke in Atlanta at a panel discussion "Federal Reserve Chairs: Joint Interview" panel on monetary policy and central banking.
We have noted the overbought bond market in the near term and the potential of consolidating at these low levels that have become too emotional; ditto for stocks being beaten down so hard recently. Near term is the key; longer term the stock market doesn’t have much to push investors back into the volatile selling at the moment.
PRICES @ 10:00 AM
10 yr. note: -24/32 (75 bp) 2.64% +8 bp
5 yr. note: -16/32 (50 bp) 2.46% +9 bp
2 Yr. note: -6/32 (18 bp) 2.48% +9 bp
30 yr. bond: -55/32 (140 bp) 2.97% +7 bp
Libor Rates: 1 mo. 2.512%; 3 mo. 2.795%; 6 mo. 2.858$; 1 yr. 3.005% (1/3/18)
30 yr. FNMA 4.0: @9:30 102.13 -31 bp (+3 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 102.49 -11 bp (+6 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.56 -22 bp (+4 bp from 9:30 yesterday)
Dollar/Yuan: $6.8714 -$0.0009
Dollar/Yen: 108.41 +0.75 yen
Dollar/Euro: $1.1349 -$0.0045
Dollar Index: 96.57 +0.30
Gold: $1279.90 -$14.90
Crude Oil: $48.64 +$1.55
DJIA: 23,149.61 +463.39
NASDAQ: 6616.26 +152.75
S&P 500: 2498.84 +51.98
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.