CHM Blog

February employment data at 8:30 am ET this morning took a back seat to worries over the banking sector. The unemployment rate increased to 3.6% against expectations of 3.4%. There were revisions to Jan jobs growth but not much, Jan NFP originally reported at 517K revised to 504K, in Feb 311K. Private jobs 265K on forecasts of 213K. More jobs but higher unemployment. Manufacturing jobs lost 4K, average hourly earnings year/year expected 4.7% hit at 4.6% up from 4.4% in January, m/m +0.2% from +0.3% in Jan.

A run to safety yesterday and continuing this morning, jitters over a rout in bank stocks hit risk sentiment and traders speculated that rate-hike bets had gone too far too fast. US banks being hit today, it started yesterday sending interest rates lower as investors moved to safety in treasuries with very little concern over today’s employment report. SVB (Silicon Valley Bank) it took a huge $1.8B loss, its stock fell 60%, the biggest one-day loss on record for a bank. The fear spread across the banking sector, that other institutions could be forced to take losses to raise cash, with the four biggest U.S. banks losing $52B of market value yesterday. The selling continued this morning in futures trading although moderated into the 9:30 am open.

Yesterday the banking fears turned investors to buyers with little concern over employment data that had dominated prior to yesterday. On Tuesday the 2 year note briefly traded above 5.0% on comments from Jerome Powell, it has declined 35 bps since then. The fear over banks may be short-lived (or not) but now investors are moving into safe treasuries and completely overrode the Feb employment data that had been the dominant concern this week. The stampede to safety yesterday dropped the sensitive 2 year note 18 bps to 4.89%, the 10 year -7 bps; early this morning the 2 year note was down another 12 bps to 4.76%, the 10 at 9 am 3.80% -10 bps.

At 9:30 am the DJIA opened -74, NASDAQ -21, S&P -8. 10 year 3.77% -14 bps, 2 year note 4.65% -22 bps. FNMA 6.0 30 year coupon at 9:30 am +25 bps and 51 bp better than 9:30 am yesterday. The 5.5 coupon from 9:30 am yesterday +77 bps.

A bank is failing, concerns increasing over the big banks losing value. The Fed now a question, with the new concerns over bank deposits will the Fed soften its attack on inflation, until yesterday a 50 bp increase was the consensus. Will the Fed refrain from accelerating its pace of tightening, with a widening bank rout getting traders concerned about the risk of further turmoil in the financial industry? Some now conjecturing that the Fed’s speed increasing rates may be hurting regional and small banks. The reactions yesterday and today in interest rates assures volatility will increase next week, the magnitude of the changes yesterday and today likely too much.

PRICES @ 10:00 AM

S&P 500: 3905 -13

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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