Floating Bias

ADP released their estimate for US job creations in the month of January.  While the market was anticipating 190,000 new hires, the actual report showed 205,000.  The details contained within the report show that a large number was in the housing and service related industries.  As expected, manufacturing was very low.  It’s unclear just how long service industries can continue to support the growth rate it has experienced as of late.  It would be nice to see more stable markets experience the rate of growth service industries have enjoyed.

On Friday we will receive the more important report on the job market, when the Bureau of Labor Statistics (BLS) will release their estimate of job creations for the month of January.  The market is currently looking for a number in the 185,000 range.  Although ADP and BLS reports will generally follow similar patterns long term, it isn’t uncommon for the two to vary from one month to the next.  Therefore, a stronger than expected ADP report doesn’t necessarily translate to a strong BLS report.  There are signs that the BLS report could come in a bit below expectations.  That would certainly be helpful to mortgage interest rates, as the market would interpret that as further evidence of a slowing economy.

The US stock market opened the day to the upside, but has since dropped back down.  The S&P 500 currently sits at 1887, which is beneath a significant resistance level at 1935.  When stocks are able to muster the strength to break above this level, this could signal a turn from negative to positive for the stock market.  Until that happens, mortgage bonds will likely continue to benefit from the weakness in stock prices and investors’ resistance to jump back in with both feet.

Bonds are still trading in the upward channel that has helped improve mortgage rates for the past month.  As long as we remain above the floor of this channel, we can carefully float.  However, if we happen to break beneath this channel, lock immediately.  If you are not able to watch the market closely, now is a great time to secure your interest rate.  It is greed that causes many to ultimately lose out in the end.