04 Mar Locking bias
The Bureau of Labor Statistics report on new job growth for the month of February came in strong as expected. It was reported that 242,000 new jobs were created. In addition, the reports for December and January were upwardly revised, adding an additional 30,000 new jobs to the totals. The Unemployment Rate maintained steady at 4.9% as expected. However, there was a bit of a twist to this otherwise strong report. Average Hourly Earnings and Average Hours Worked actually fell. Hourly Earnings fell 0.1%, instead of rising 0.2% as the market anticipated. This reduced the year over year wage gains to 2.2%, which confirms that there are very little wage gains posing a threat to wage based inflation.
After last week’s Core Rate of Personal Consumption Expenditures (PCE) came in with a year over year gain of 1.7%, added with today’s strong employment report, there will be growing pressure on the Fed to consider another rate hike. This could increase volatility in both the bond and stock markets. If it wasn’t for a weak report on Average Hourly Earnings and Average Hours Worked, the bond market would be down significantly. However, it is still trading within a sideways channel. As we drift lower towards the bottom of the channel, we need to be careful. If support directly beneath current levels fails to hold, we could see a more precipitous drop lower. This would pressure the APR of mortgage rates higher and make a recovery less likely.
With bonds continuing to show significant weakness, we will maintain our locking bias. Hopefully we will be able to find support near current levels. We will have to wait and see.