Watch the market closely

Mortgage bonds are bouncing off the bottom of the channel as hoped and stocks are pointed lower in early trading.  Friday’s Bureau of Labor Statistics (BLS) Jobs Report sent the bond market in a tailspin after a stronger than anticipated job growth was reported.  Upon initial glance it appears that the report showed that wage inflation was moving higher.  However, a closer look reveals that although there was a move higher, it was an increase from December’s report which showed a lower than average hourly earnings from November’s report.  This is mainly due to lower paying seasonal retail hiring which drove the number of new hires up and the average wage of each worker down.  Now that seasonal jobs are behind us, it makes sense that average wages will be higher.

Oil prices continue to rally higher, with Brent crude now trading at $53.02.  After falling nearly 60% in a six month period, the increase in price is welcome news to energy companies as well as those who drill for oil.  It is reported that 288 oil rigs were shut down in the month of January.  This is a significant reduction when you consider that the number of operational rigs in the US peaked at 1,551 in the month of October.  Each rig is estimated to employ 350 people.  As rigs close we will see the impact reflected in future job reports.  This will create additional headwind to our economic recovery and will likely cause the Fed to pause on any immediate hike in the Fed Funds Rate.

We feel that today could present a higher than normal amount of volatility as the markets decide which direction to take.  It is very possible that we will see bonds fall back to test the bottom of the channel before they improve.  While at the bottom you can carefully float as long as you are watching the market closely.  If bonds are unable to sustain above current support, lock quickly as sentiment can change very fast.