ADP released their estimate of new job creations in the month of February showing that employment growth was stronger than the market anticipated. They reported 214,000 jobs created in the month of February, which was nearly 30,000 above estimates of 185,000. As expected, there was a downward revision to last month’s figure from 205,000 to 193,000. A deeper look at the report shows that manufacturing and oil continue to be weak, while business and professional jobs grow at a powerful rate. The more respected BLS (Bureau of Labor Statistics) report is due for release on Friday. Given the strength of the ADP release today, we could be in for a shockingly high release on Friday. That has both the stock and bond markets worried, as this could pressure the Federal Reserve to continue hiking rates. Therefore, both markets are suffering losses so far today.
Mortgage bonds have broken beneath the floor that held rates from moving higher, and now have about 30 basis points still to fall before hitting the next floor of support. It seems likely that bonds will at least test this floor before finding stability. If fact, if Friday’s Jobs Report significantly beats expectations, bonds could drop in the range of their 100 day moving average, which is about 70 basis points beneath current levels. Overall, this move in the bond market could easily hit a rate increase of ¼% before finding support. The next few days will prove critical in determining the near term direction of mortgage interest rates. Watch closely and hold on for the ride!
With bonds continuing to move lower, we will maintain our locking bias as we move into Friday’s BLS Jobs Report.