It will be a busy news week, highlighted by Friday’s report from the Bureau of Labor Statistics (BLS) regarding job gains in the month of November. Given that this will be the last look at the job market before the December 16th Fed meeting, it will be a significant report for the future of interest rates. It is expected that 190,000 new jobs were created, which shouldn’t be a difficult bar to reach given the likely number of seasonal holiday roles filled by retailers across the country. As long as the report is not a huge downside surprise, it is widely anticipated that the Fed will raise short term interest rates in December. Most feel that at this point it would take a major financial interruption to deter the path the Fed set forth last month when they essentially let the market know that December will be the date for a rate hike. It will be nice to have this milestone behind us so that we can get back to business as usual without the continual fear of a rate hike.
The Chicago PMI is an index surveying business conditions in the Chicago area. It was reported this morning to be 48.7 for the month of November, which was below expectations of 54 and well below October’s report of 56.2. Given that a number below 50 reflects a contraction in the economy, this is a significant report. There are several market indicators now pointing towards a higher likelihood that the US economy is heading near recession territory. With this report supporting that possibility, the market’s reaction helped improve mortgage bonds. While there are many economic reports showing continued growth, there are still reasons to be concerned.
Mortgage bonds are now near the top of a trading range, increasing the risk of reversal in the bond market. In line with the rule of locking while at the top of a trading range, we will maintain our locking bias.