05 Dec Big risks = Locking bias
This morning’s release by the Bureau of Labor Statistics on job growth for the month of November came in significantly stronger than expected. With market expectations set at 230,000, the final report came in at 321,000! In addition, there were another 44,000 new jobs added to the past two month’s reports. As expected, the Unemployment Rate remained unchanged at 5.8%. All in all, this was a very strong report, made up mainly with full-time jobs with decent rates of pay. There is the seasonal job growth from businesses building up labor in anticipation of holiday sales included in these numbers, so we must take that into consideration. However, it does confirm recent signs of continued economic strength, and puts 2014 on track to be the best year for US job gains since 1999.
The talk on the streets is once again focused on the Fed and when they will raise short term interest rates. It seems irresponsible to have interest rates near 0% with job growth in excess of 300,000 in a month. However, until there are clear signs of inflation, the Fed is not likely to raise interest rates. Now that oil prices are below $70 per barrel, immediate inflationary concerns are not widespread. With global economic conditions continuing to slow, that will add further headwind to the US economy in 2015. Although continued expansion is anticipated, the rate of economic growth may be slower. This could spill over to the job market and cause a slower pace of new job creations.
Bonds fell sharply on the news this morning. However, they are still above support at the 25 day moving average. As long as this level holds, mortgage rates should remain near current levels. The direction of rates will also be influenced by the 10 Year Treasury Note Yield, which is currently pressing up against its 25 day moving average as well. It that Yield breaks higher it will certainly spill over into the bond market pressing mortgage rates higher as well. Also of concern is the stock market. The S&P 500 is right at all-time highs. If it breaks above this level it could take another step higher which will also pressure mortgage rates higher. Given the risks in the market, we will continue with our locking bias.