 Today's Market Action 2-3-12Friday, February 3, 2012 - Article by: Joe Shamie -
February 3, 2012 10:04am ET Current Trend Direction: Intermediate Trend remains higher, Short-term lower off ceiling of resistance Float/Lock Bias: Cautious with bias towards Locking short-term, Floating longer-term Current Price of FNMA 3.5% Bond: $103.62, -41bp Mortgage Bonds are sharply lower on a far better than expected Jobs Report. Let's break it down. The headline Jobs Report showed 243,000 jobs created, far above estimates of 150,000. A whopping 257,000 private jobs were created, much higher than the 168,000 expected. Upward revisions to November and December added another 60,000 jobs to what was previously reported. And adding to the euphoria was a 0.2% decline in the Unemployment Rate, bringing it to 8.3%...the lowest since Feb 2009. The knee jerk reaction to the bullish report was obviously a sharp move lower in Bonds and a move higher in Stocks. However - it will take some time for the market to digest and question the strength of these numbers. A couple things we are seeing that have yet to be discussed on the wires was a pretty sharp decline in the labor participation rate from 64% to 63.7% - as discussed yesterday, we really need to have more people "participating," or working to help pay down our debt. Understandably, the demographics of baby boomers retiring does account for some of the decline - but is it the entire 0.3%? And the U-6 Unemployment Rate (which counts all persons marginally attached to the labor force, including those who are employed part time but would prefer full time) remains at a lofty 15.1%, with that figure dropping just 0.1% for the month. The takeaway here - the pace of the improvement in the labor market is choppy and muddled at best - but the trend is improving over time, and is welcome news for the struggling housing market. To use a Super Bowl analogy, we were happy to be locked and on the "sidelines" in advance of this report. The technical picture was a concern heading into the report as prices were stalling right up against a ceiling of resistance. This coupled with the risk of a volatile Bond market reaction made locking prudent. Looking ahead - could rates come back down? Of course. This is just one Jobs Report, and it doesn't make the problems in Europe go away...and as uncertainty reemerges, US Bonds will benefit. In fact, just this morning we are hearing some concerning reports from Europe, including news that international debt inspectors said that an additional 15B Euro of debt was found in Greece - making their problems even larger than previously thought...if that can be imagined. And in Ireland, the country just dramatically cut their 2012 GDP forecast to 0.5% from 1.8%. We think the 0.5% may be optimistic, and the anemic figures are a direct result of stiff austerity measures. |
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