ADP Reports Strong Labor Market Growth

Stocks are making a technical move higher, after bouncing off the floor of support. Overall, stocks are trading within a tight range as they look for reasons to make a break in one direction or the other. The outcome of which way they will go could be heavily influenced by the statements that will be made by the Federal Reserve at 2:00 pm EST. If the Fed backs down on future rate hike predictions, which I believe they eventually will, the stock market will celebrate that news. This will add upward pressure to mortgage interest rates as many investors will likely sell their bond holdings to invest in the higher potential gains offered by stocks.

A strong ADP report shows that job gains in the month of January came in at 213,000, which far exceeded the market’s expectations of 174,000. Of this total, 145,000 were added in the service sector alone. This is a strong indication for consumer spending, which heavily influences the direction of mortgage interest rates. This number now sets the stage for a stronger than expected report on Friday when the Bureau of Labor Statistics (BLS) will announce their estimate of new hires. Since the BLS is the more respected of the two, that one has a greater influence on mortgage rates, so we need to be careful as we head into that report.

With mortgage bonds under pressure, the safe play is to maintain a locking bias.