Mortgage Bond Market Analysis - Jobs Data, part 1

Surprise, surprise.  We have more selling - AND THE DATA IS WEAK, and a bit conflicting.  Are traders using the much weaker-than-expected ADP Private Payrolls report as an excuse to jump back into the market or are they looking ahead to tomorrow and Friday in anticipation of what's expected to be much stronger data as reason to sell?  Here's what happened this morning.  ADP private payrolls came in at 169,000 vs. estimates of 200,000 and previous of 175,000.  This is weak but it's also not as accurate as the non-farm payrolls report on Friday and not as broad-based.

More concerning is the non-farm productivity which came in at -1.9 vs. expectations of -1.8 - still better than the previous month of -2.2.  Weak productivity means a lack of efficiency which shows up in higher unit labor costs which was also released today:  the 5.0 reading was higher than the expected number of 4.5 and the previous reading of 4.1.  This is inflationary and higher interest rates help stem inflation which is the reason for the sell-off this morning.  As far as today's data is concerned, the weak ADP numbers should have helped the benchmark bond get a big while the inflationary unit labor costs are what the traders are focusing on and the reason for the selling.  Did you lock yesterday like I recommended?  Here's a look at the morning's chart:

In addition to having some support at 100.66, the RSI is oversold.  It's very possible that traders could be looking for a reason to jump back into the market.  If we get some truly weak data tomorrow (the "inflation" data more than offset the weak ADP numbers this morning), we could very well see some improvement.  If you didn't lock yesterday, it might be worth waiting until tomorrow or even Friday - the gamble with Friday is that the non-farm payroll numbers are expected to be strong and even a near miss might still prompt traders to sell.  I'd probably float through tomorrow and if we get some good improvement you could either lock and be happy with it or you could float with a hedged bet against Friday's data.

I'd love to earn your business but I want to add value to everyone I can.  I hope this information helps you in your decision to lock or float - it's rarely an easy decision to make.  Please feel free to call me at 702-812-1214 if I can help with anything mortgage-related.