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Friday, June 3, 2016

Mortgage Bond Market Analysis - Jobs Data Friday

Happy Friday.  There's lots of data so I'll get right to it.  Yesterday, Jobless Claims and ADP Private Payrolls both came in slightly better than expected with Jobless claims coming in slightly lower and ADP Private Payrolls coming in slightly higher.  If you read my blog on a regular basis, especially the coverage of Jobs Week for the first five months of the year, you know that there has been a relatively strong correlation between the ADP Private Payrolls and Non-farm Payrolls.  This time we have done an about face.  May Non-farm payrolls were a HUGE miss coming in at 38K (extremely weak) vs. expectations of 164K.  Here's the really funny thing - the unemployment rate dropped from 4.9% to 4.7%.  If you are thinking clearly your question should be "How is it possible that so few jobs were created yet the unemployment rate was reduced by .2%.  The devil is in the details and the details show that the Labor Force Participation rate dropped from 62.8% to 62.6%.  The population that makes up the Labor Force is the biggest of all data populations for the various jobs data so a .2% drop has a dramatic impact.  The true unemployment rate isn't anywhere close to 4.7%.  In reality, because of an ultra-low labor force participation rate, the unemployment rate is somewhere in the double digits.

May ISM Services came in at 52.9, expansionary but far below the expected 55.5.  Earlier in the week we had a much weaker than expected consumer confidence number as well.  This kind of data will likely give pause to Fed members who are on the fence about raising rates.  The hawks will argue that the key data that justifies a rate increase is there like PCE and CPI while the doves will argue that weak jobs data will lead to less spending and the PCE and CPI will both likely decline over the next few months making a June rate increase unnecessary.  I'm just hypothesizing but this data certainly helps the mortgage interest rate picture today but it muddies the water of a Fed rate increase.

If you have a mortgage that isn't locked, take advantage of today's bad economic news.  You may be o.k. to float to see if the mortgage bond buying has some legs.  On the technical front, the FNMA benchmark bond is at 102.81, 2 basis points above the 2nd level of resistance.  Closing above this resistance level will mean a higher likelihood of a little rally.  The RSI is in overbought territory so there is the possibility that lacking any important data, bond traders might decide it's time to take some money off the table which means they sell, bond prices go down and interest rates move higher.  If you've read my blog for any length of time, you know I'm on the conservative side when it comes to locking and that I don't like to be greedy.  Contact me if I can help with anything - 702-812-1214 or 801-893-1737 or jed.wunderli@noblehomeloans.com.  Make it a great day and a better weekend.

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