Locking bias

Locking bias

ADP released their estimate for new jobs created in the month of June showing that there were 172,000 private sector jobs. This was stronger than the markets’ estimates of 150,000, and also stronger than the prior month’s revised report of 168,000. Since June is a month for student summer jobs, this really isn’t an impressive figure. This is further supported by the majority of the job gains coming from the service sector of the economy. Many of these will likely be lost as summer winds down and kids head back to school. However, in the meantime, the headlines will continue to justify a growing economy based on the number.

 

Both stocks and bonds started the day lower and have moved to near unchanged levels as the morning turns into mid-day. Given the importance of tomorrow’s Bureau of Labor Statistics (BLS) Jobs Report, we could see some profit taking as the day wears on from investors who are unwilling to take the risks associated with the report. As a result, we could see elevated levels of volatility.

 

Deciding whether to lock or float heading into such an important report is a difficult decision. Generally, we look at the risk vs reward equation to help us make a recommendation to our clients. Given that mortgage rates are at more than three year low levels, there are limited benefits for rates to move lower. Further, last month’s BLS report was a dismal miss. After such a low report, we often see a rebound in the number of jobs created. Therefore, it seems reasonable to suggest a locking bias heading into tomorrow’s release.