Watch the market closely today

The first of three readings on the job market was released this morning when ADP reported that there were 212,000 new jobs created in the month of February.  Although lower than the 220-230k anticipated, it is still a decent number.  This marked the 11^th month is a row of 200,000+ jobs created in a single month, which shows we are experiencing a healthy growth rate in the job market.  This report sets the stage for Friday’s important Bureau of Labor Statistics (BLS) reading.  The recent trend has been for the BLS reading to be a bit higher than ADPs, which then ADP upwardly adjusts their figures the following month to become more in line with the more trusted BLS report.  We will have to wait and see if this pattern again repeats itself on Friday.

Mortgage bonds have dropped further and are now at the very bottom of the trading channel.  Yesterday’s losses in the bond market occurred on a weak day in the stock market as well as continued softening in oil prices.  Both of which should have helped boost bond prices higher.  Oil prices continue to be under pressure today following a report that oil supplies in the US continue to increase.  In spite of a continued reduction in the number of oil rigs, the US has been producing and importing an average of 1 million more barrels of oil every day above what it is consuming.  As a result, oil supplies in the US have reached an 80 year high.  If this continues, storage tanks could approach their operational limits which will further drive down the price of oil.  This would hurt the US stock market and help boost bond prices and lower mortgage interest rates.

With mortgage bonds at the bottom of a trading channel we will switch to a floating bias as we watch closely to see if support holds.  If support fails that would be very negative for the direction of mortgage rates.  If you choose to float, watch the markets closely as sentiment can reverse quickly.