04 Nov Locking bias
We received the first of three reports on the job market this morning, with ADP announcing that there were 182,000 new jobs created in the month of October. Since this was in-line with expectations of 185,000, the reaction in the market was muted. We will get the more significant BLS report on Friday morning. Since the last two month’s BLS reports were well below the ADP reports, we could see a bit of a correction higher in the BLS report this month. Although the two have different methods of computing job growth, they tend to be similar in the long run. At this point, the BLS reports are below those of ADP. Friday’s announcement could therefore exceed the 190,000 now anticipated within the report.
Fed President Janet Yellen spoke again this morning, stating that she sees the US economy performing well. She feels that some of the downside risks have diminished and that we will likely see continued growth in the economy. Although she did acknowledge that inflation is still running considerably below the 2.0% target, she stated that it could be appropriate to raise short term interest rates at the next Fed meeting. She reiterated that the Fed is still data dependent and that no decision has been made at this time. These words sent the bond market lower, adding upward pressure to mortgage interest rates.
With the bond market still beneath its 200 day moving average, the upward pressure to mortgage rates continues. Therefore, we will maintain our locking bias.