Morning Report: Unemployment and wages fall 12/2/16

Vital Statistics:

Last Change
S&P Futures 2190.0 -2.0
Eurostoxx Index 338.2 -3.0
Oil (WTI) 51.1 0.0
US dollar index 91.5 -0.2
10 Year Govt Bond Yield 2.41%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.14

Markets are flattish as investors digest the jobs report. Bonds and MBS are flat as well.

Jobs report data dump:

  • Payrolls up 178k vs 170 expected
  • Unemployment rate 4.6% vs. 4.9% expected
  • Labor force participation rate 62.7% vs 62.8% expected
  • Average hourly earnings down .1% vs expectations of a .2% increase

On balance, the report was mixed. While the drop in the unemployment rate was encouraging, the drop in wages was a disappointment. The drop in the labor force participation rate didn’t help things either. This probably doesn’t change the Fed’s thinking for the FOMC meeting in a couple of weeks.

The bright spot in the report: the big drop in the unemployment rate for the age 25-34 cohort. Good news for the mortgage and real estate industry. Anecdotally, college applications are falling markedly, which indicates people are getting jobs as opposed to going back to school. Overall, it means the first time homebuyer is in better shape.

Bonds initially rallied on the report, but have given back their gains.

Bill Gross isn’t buying the big rally in stocks lately. “An investor should move to cash and cash alternatives, such as high probability equity arbitrage situations,” Gross, who runs the $1.7 billion Janus Global Unconstrained Bond Fund, said. “Bond durations should be far below benchmarks.” The bond duration comment means he sees interest rates continuing to rise. In his view, equity investors are putting too much stock in things like regulatory reform and fiscal stimulus, as demographics and low productivity are likely to remain the more dominant forces in the market, which is ultimately bearish for stocks. Separately, investors pulled $4.1 billion out of taxable bond funds last week.

HUD has raised the FHA loan limit to $424,100. following the increase from Fannie Mae.

%d bloggers like this: