Safe play is to lock

The job market ended 2015 on a strong note, as confirmed by the Bureau of Labor Statistics’ (BLS) Jobs Report showing that 292,000 new jobs were created in the month of December. This was significantly higher than the 200,000 the market anticipated going into the release. In addition, there were upward revisions to the prior two months’ original reports which added another 50,000 jobs to the US labor force. The Unemployment Rate remained steady at 5% as expected.  However, the one major component that the Federal Reserve was hoping to see advance at a greater rate was wage growth. Unfortunately, this stubborn number continues to disappoint. Overall, 2015 was a strong year for job growth, with a total of 2.65 million new jobs created. Although less than the 3 million added in 2014, it’s still a respectable number.

The Chinese stock market gained 2% after the Chinese government announced it was not going to continue forcing the value of their currency lower.  Their government has been manipulating the value of the Yen to make it less expensive for US consumers to import their products. The manipulation of their currency makes it more expensive for their people to purchase US goods and services, which clearly is damaging to the US economy. For this reason, large international US companies will continue to fight an uphill battle in 2016 with international sales. Stock markets around the globe are celebrating the news our of China, with the DOW Jones Industrial Average up sharply out of the gates this morning. Combined with the strong BLS Job Report, this pushed mortgage bonds lower this morning. However, the bond market came back to near unchanged levels shortly after.

Job Report days typically have increased levels of volatility for the mortgage interest rate market. As investors digest the details of the BLS report, they will find that 40% of the jobs came from 16-19 year olds. These are clearly mainly seasonal jobs to support high volume Christmas shopping.  Therefore, mortgage bonds may actually benefit as time moves on. Although the safe play is to lock, if you have a higher risk tolerance and are able to watch the markets throughout the day, you can carefully float.