Learn from the Past
Mortgage backed securities (MBS) gained 7 basis points from last Friday’s close which caused fixed mortgage rates to move sideways compared to the prior week.
Jobs, Jobs, Jobs: It was Big Jobs Friday!
Here is the tale of the tape:
• August Non Farm Payroll Jobs increased by 1.371M vs. estimates of 1.400M. Of those, 1.027M were added in the private sector.
• July Non Farm Payroll Jobs were revised lower from 1.763M down to 1.734M
• June Non Farm Payroll Jobs were revised lower from 4.791M down to 4.781M
• The headline Unemployment Rate was lower than expected 8.4% vs. estimates of 9.8%
• The number of “temporarily” unemployed surprised as it dropped by more than 3 million to just 6.2 million, from 9.2 million the month before
• The U6 Underemployed Rate was 14.2% vs. estimates of 17.3%
• The Participation Rate increased to 61.7% from 61.4%
• The Average Hourly rate for all employees increased by 11 cents to $29.47
• The MOM change was 0.4% vs. estimates of 0.0%
• The YOY change was 4.7% vs. estimates of 4.5%
Additional Jobs related reports last week: The August Challenger Grey Job Cuts showed a big decrease in announced corporate layoffs, dropping from 262,649 in July down to 115,762 in August. Initial Weekly Jobless Claims were better than expected (881K vs. estimates of 950K). Continuing Claims were 13.254M vs. estimates of 14.000M. However, there are still over 29M people receiving some form of unemployment assistance which is up 2M from the last reading.
Services: The August ISM Non Manufacturing PMI (accounts for 2/3 of our economic activity) was in line with estimates, 56.9 vs. estimates of 57.0. Employment was much stronger than expected (47.9 vs. est. of 31.9), Prices Paid jumped up to 64.2 vs. estimates of 61.7.
Manufacturing: The August ISM National PMI (1/3 of our economic activity) hit 56.0 vs. estimates of 54.5, Prices Paid were 59.5 vs. estimates of 54.0 and the Employment Index was 46.4 vs. estimates of 45.8.
What’s on the Agenda for this Week?
Last week saw some real “choppiness” with a swing of 67BPS between best and worst pricing of the week. Those “wicks” show that MBS failed each and every time after trading above the proprietary ceiling of resistance set each day.
The three areas that have the greatest ability to impact backend pricing this week are: (1) Central Bank Palooza, (2) Treasury Dump and (3) Stimulation Nation.
(1) Central Bank Palooza: Tthe Bank of Canada’ will issue their interest rate decision on Wednesday but it’s Thursday’s European Central Bank’s interest rate and policy decision on Thursday that will be a major market driver this week.
(2) Treasury Dump: There is another massive wave of debt that the Treasury department will be dumping into the marketplace which is in direct competition for dollars with MBS. Last month, MBS sold off noticeably after the Treasury 30 year bond auction. It will be that same auction on Thursday.
(3) Stimulation Nation: While it appears that both parties are on board with “kicking the can down the road” with raising the debt ceiling and avoiding a Government shutdown this month, the market is focused on any movement on the next stimulus bill now that Congress is back in session following the Labor Day weekend.
Treasury Dump: The Fed kicked off three days of dumping debt into the marketplace with the shorter term 3 year note. $50B went off at a high yield of 0.170%. The bid-to-cover ratio was 2.28.
Small Time: The August NFIB Small Business Optimism Index was stronger than expected, 100.2 vs. estimates of 98.9.
Consumer Credit: The July data showed an increase of $12.3B vs. estimates of $13.4.
On Deck for Tomorrow
Bank of Canada Interest Rate Decision, JOLTS, 10Y Treasury note auction.