It's hump day which means we are just three days away from a weekend and lots of college and NFL football. It's also the start of three consecutive days of the various jobs / employment reports. This morning we got the ADP Private Payrolls report which is virtually always the least important of the three. There is often a disconnect between this morning's report and the non-farm payroll report on Friday. 200K jobs were created per this morning's report, vs. estimates of 195K and previous of 186K. The report that is probably going to get more publicity this morning is the Chicago Purchasing Managers Index which came in at a very disappointing 48.7 vs. estimates of 53.6. Not only is this a big miss but it shows contraction in this sector; a reading below 50 is contraction and above 50 is growth. It will be interesting to see what the jobless claims numbers are as well as the non-farm payrolls. I personally don't give much heed to the unemployment rate (also released on Friday) since the rate can drop by people leaving the workforce which is why we need to pay more attention to the Labor Force Participation Rate which is currently at a 38 year low of 62.6%.
From a technical standpoint we had a nice up day yesterday with no data of much consequence for bond investors. The Case-Shiller Home Price Index came in low at 4.96 vs. estimates of 5.2. Consumer Confidence blew away estimates of 96 coming in at 103. This probably helped offset the disappointing Case-Shiller numbers but since about half of the gains occurred in afternoon trading, it probably didn't have much impact on the bond price increase. The FNMA bond closed above the 2nd resistance level and the 200 day moving average at 104.25. This is the highest close since May 29th. Now the trick will be to stay above the 2nd resistance level which was adjusted to 104.24. The benchmark bond is currently down 7 basis points and is hovering just above the 200 day moving average and smack dab in the middle of the 1st and 2nd resistance levels. The RSI is now below the overbought level about halfway between neutral and overbought so this is less of an issue now. Based on the charts this morning, it looks like the benchmark bond could trade in a tight channel today unless something happens to break it out, but for now it is looking very tight and non-dynamic. The fact that the DOW is up by triple digits (229 currently) is part of the reason why the bond isn't getting more traction from the weak Chicago PMI number.
The jobless claims numbers have had very little impact over the last few months and the non-farm payrolls have also had about as much impact as a Nerf hammer recently. Since the bond broke through the resistance levels and 200 day moving average, I would probably float (with EXTREME caution) to see if it can get any traction. Commodity prices are really low which will help keep inflation down. If we don't see big jobs numbers, I would expect a rally in the bond market which would push bond prices even higher (and rates lower). That said, we are barely above the moving average and we are now below the (new) 2nd level of resistance so the sellers may take over and push prices back down which is why it's important to keep a close eye on the market so that you can request a lock very quickly just in case massive selling occurs.
I'll be out of town tomorrow through Sunday and possibly Monday so there won't be any reports until Monday at the earliest as I will have no internet connection. I look forward to updating you when I get back. In my absence, if you need a pre-approval, please contact the owner of my company (Noble Home Loans), Brad Malkin, at 702-869-8790 and he can help with an approval as well as any mortgage questions. Make it a great day and a better weekend.