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Sunday’s: 7AM K-EARTH 101 FM
Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
Our benchmark FNMA MBS 6.00 July Coupon is currently down -8 BPS.
Jobs, Jobs, Jobs: Its Big Jobs Friday! You can read the official BLS report here. Here is the Tale of the Tape:
Jobs:
June Non Farm Payrolls (NFP) increased by 209K vs. estimates of 225K
May NFP were revised downward from 339K to 306K
April NFP were revised downward from 294K to 217K
The rolling three month average is now 244K which is a solid reading
Wages:
The national hourly earnings rate rose by 12 cents to $33.58 which is a large monthly increase.
MOM, Hourly earnings were up 0.4% vs. est. of 0.3%, plus May was revised upward from 0.3% to 0.4%.
YOY, Hourly earnings were up 4.4% vs. est. of 4.2%, Plus May was revised upward from 4.3% to 4.4%
Employment:
The headline Unemployment Rate dropped from 3.7% to 3.6% which was expected.
The U6 Underemployment Rate increased from 6.7% to 6.9%
The Labor Force Participation Rate remained at 62.6%
It took over a month to come around to the reality the Fed will increase rates on the 26th. The argument raged for weeks that the Fed first was done increasing rates, and secondly by the end of the year the Fed would be lowering rates. A month ago, the data and comments from the Fed were balanced with Fed officials appearing to be evenly divided between another pause or increasing. Over the recent weeks Jerome Powell and increasingly more Fed officials made a point that the Fed’s 2.0% inflation target was still where the Fed wants to go; the FOMC meeting, the central banked conference with all key central bankers, the continuing strong employment levels with increasing paychecks pushed the balance to now fully looking for a 25 bp increase at the next FOMC meeting. Last Friday the 10 year note traded at 3.81%, this afternoon 4.04% 23 bps higher; the 2 year note this week increased from 4.87% last Friday to 4.94%.
NFP jobs in June expected +213K as reported +209K, markets were rocked yesterday when the ADP private jobs that were expected 235K but increased 497K. Private jobs from this morning increased 149K against forecasts of 199K. The 10 year yesterday increased 11 bps, the difference between ADPs release and today’s BLS release, what is considered the go to data, 348K. We have mentioned it many times over the years that trading on the ADP report is risky as the diversity between the two can he huge. In this case although job growth didn’t meet forecasts (NFP expected 213K reported 209K, private jobs expected 199K as reported 149K) but rates today held the increases yesterday. It wasn’t jobs, it was the increase in annual hourly earnings increasing 4.4% against forecasts of 4.2%. Powell clearly concerned about wages and strong job growth.
Next Week look for more volatility in the interest rate sector with inflation data. Monday May wholesale inventories, May consumer credit. Tuesday June NFIB small business optimism index. Wednesday June CPI, weekly MBA mortgage applications. Thursday weekly jobless claims, June PPI. Friday June export and import prices, U. of Michigan consumer sentiment index mid-month.
This week: The 10 year note rate increased 25 bps, the 2 year note increased 8 bps. FNMA 6.0 30 year coupon declined 77 bps. The DJIA -573, NASDAQ -127, S&P -51. Gold increased $5.00 this week; crude oil increased $3.39. The dollar declined, the index –0.62 as traders unwound the dollar bet. Bitcoin down 181.
Next week inflation data will take center stage, after this week there is no disagreement that the fed will increase the FF rate 25 bps, looking out further after the big rate increases this week the debate will continue leading into the Sept FOMC meeting. One thing now totally clear, those that were thinking about rates being lowered by year end have to change their views (I’m sure that already have). MBS prices are ending the day 14 bps better than at 9:30 am. Technically the bond market is overbought in the near term.
