LAST WEEK (1-1 to 1-5-2007)
Fascinating things were going on behind the scenes on Thursday afternoon...here's what happened.
Late last week, analysts reduced their estimate for Friday's Jobs Report number from 115,000 to 100,000...this clearly indicating much lowered expectations in new job growth. Their predication was based on ADP reported job loss for the previous month and the FED sharing it thought the employment market would be cooling. That means ...when Bond traders saw the late change in analysts formal expectations, they gobbled up even more Bonds ahead of the Jobs Report - figuring that the number would likely come in low, Bond prices would rally, and home loan rates would improve. {WHEN BONDS GO UP...YIELD GOES DOWN...WHEN YIELD GOES DOWN...HOME LOAN RATES GO DOWN}
But this was not to be. When the numbers from the Jobs Report were posted, Traders were stunned to see an unexpectedly high December Jobs number of 167,000, with the Unemployment Rate holding steady at a very low 4.5%. Additionally, the Average Hourly Earnings in December shot 8 cents higher or 0.5%, far ahead of the 0.3% rise expected. This brings the average US hourly rate of pay to just over $17. Bond Traders quickly realized they were positioned on the wrong side of the market and began to sell, sparking a move lower in Bond pricing, and giving back some of the gains made previously in the week. {WHEN BONDS GO DOWN...YIELD GOES UP...WHEN YIELD GOES UP...HOME LOAN RATES GO UP}
THIS WEEK (1-8 to 1-12-07)
So...what will happen this week? In terms of economic news, the week ahead will be fairly slow, until Friday's potentially high impact Retail Sales Report. And whenever the market lacks economic reports and data to trade on, technical indicators like historic highs, lows and trendlines will generally take center stage. The great news is the technicals are on our side.
There will be 5 reports this week that may effect rates. The 3 big ones are Inital Jobless Claims (1/11/2007)...Retails Sales & Retail Sales ex-auto (1/12/2007). It is my opinion that Fridays reprts will have the highest impact.
Kevin
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