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Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
3:30 EST – Our benchmark FNMA MBS 6.00 June Coupon is down -25 BPS with 90 minutes left to trade.
Jobs, Jobs, Jobs: Its Big Jobs Friday and we got a mixed bag of data. You can read the official BLS release here. Here is the Tale of the Tape:
Jobs:
May Non Farm Payrolls (NFP) increased by 339K vs est of 190K
April NFP was revised upward from 253K to 294K
March NFP was revised upward from 165K to 217K
The closely watched rolling three month average is now a hefty 283K
Wages:
The Average Hourly Earnings Rate increased by 11 cents to $33.44
Average Hourly Earnings MOM were up 0.3% vs est of 0.3%
Average Hourly Earnings YOY were up 4.3% vs est of 4.4%
Unemployment:
The headline Unemployment Rate increased to 3.7% vs est of 3.5%
The U6 Underemployment Rate increased to 6.7% vs est of 6.6%
The Labor Force Participation Rate was unchanged at 62.6%
Observations: This is a mixed bag for those trying to handicap the next Fed move. The NFP data screams “hike” but the higher Unemployment Rate and “moderating” YOY wages gives the Fed cover to do nothing. There continues to be a very wide divide between the “data” the two methodologies at the BLS to tracking jobs. The headline Establishment calculation showed +339K jobs but their Household report showed -310K jobs.
Put to Bed: The Senate passed their Bill to raise the debt ceiling. 31 Senate Republicans, voted against the debt ceiling bill, while just 17 GOP senators supported it. On the left, only four Democrats and Vermont independent Sen. Bernie Sanders voted to sink the bill, while the other 46 members of the Democratic caucus voted for it.
More jobs than expected, more job openings than expected, yet average hourly earnings declined. The Senate passed the debt ceiling bill. Stocks loved the employment report today showing a stronger economy than expected with jobs increasing. The Fed will pause when the FOMC meets in two weeks, no inflation in wages. Those were the headlines this week. On the debt ceiling, “Although the resolution of the U.S. debt limit impasse allows the government to meet its obligations” Fitch is maintaining the negative watch while it considers “the full implications of the most recent brinkmanship episode and the outlook for medium-term fiscal and debt trajectories,” Richard Francis, Fitch’s senior director of sovereign rating said in a note with a colleague.
Interest rates spent two weeks in a straight line lower, mostly on the debt ceiling that drove haven trades. That the Fed won’t increase rates added to the gains. On the week, the 10 year note yield fell from 3.80% to 3.60%, today the 10 increased 9 bps to 3.69%. The Fed will pause because Fed officials as well as Jerome Powell said so. With the economy still stronger than expectations the Fed will be primed for a rate increase at the July meeting. Sounds good, and will stand that way unless inflation increases, that data will hit while the FOMC meeting is occurring. Even higher inflation isn’t likely to move the FF rate higher at the last minute, that would suggest panic and the Fed doesn’t want that.
Next Week: thin on key data, the May ISM services sector release on Monday the main event scheduled next week. Monday ISM services, April factory orders. Tuesday no data. Wednesday weekly MBA mortgage applications, April US trade deficit, April consumer credit and. Thursday weekly jobless claims. Friday nothing. Of course, we will be treated to Fed speakers, after today’s employment report their comments will be interesting. Next week leads into the FOMC meeting the following week with key inflation data with the release of May CPI and PPI.
This week: The 10 year note this week -11 bps from last Friday. FNMA 6.0 coupon this week +70 bps. The DJIA had a huge run today, on the week the DJIA +670, NASDAQ +265, S&P +77. Gold increased $21.00 this week; crude oil increased $0.82. The dollar index inched fractionally higher (+0.18 to 104.22), driven today with the strong equity market and increased rates. Bitcoin increased 466 for the week.
