Mortgage backed securities were off about 40 bps this morning, but are only off 9 bps currently. I would continue to float and see if they continue to improve throughout the day.
Risks favor: Floating into Jobs Report
Current Price of FNMA 6% Bond: $101.31, -34bp
Mortgage Bonds are down sharply this morning after they have enjoyed a nice three-day 160bp rally higher. Prices are now resting just near important support at the 200-day Moving Average with the highly anticipated Jobs Report set for release tomorrow - read on for our Jobs Report Strategy.
Initial Jobless Claims were 481,000, slightly worse than the 476,000 expected. The continuing claims jumped to 3.84 million, the worst in 25 years.
A preliminary reading on 3rd Quarter Productivity, a measure of employee output per hour, rose at a 1.1% annual rate, slightly above expectations. Labor costs climbed at a 3.6% annual rate, also more than the anticipated 2.8%. The higher labor costs are inflationary and not bond friendly, causing some of the selling pressure we are seeing today.
Some huge global news - The Bank of England surprisingly cut their benchmark interest rate by 1.5% to a rate of 3%, bringing it to the lowest level since 1955. And if that weren't enough, the European Central Bank (ECB) also lowered interest rates by .50% to a 3.25% rate. In recent updates we have been discussing how it was likely that Europe would need to continue cutting rates and how that would have a positive effect on the US Dollar and thus Oil prices - at the moment Oil is down over $3.00, leaving Oil under $62 per barrel. It looks like more cuts in Europe are likely.
Jobs Report Strategy
We always have to consider both fundamental and technical factors. Fundamentally, tomorrow's Jobs Report is set up to be a stinker. However, the markets are already prepared for a lousy report, with estimates of 200,000 jobs lost during October. The recent ADP Report as well as the latest Initial Jobless Claims numbers indicate that the Job market is doing poorly. So while we will certainly see a bad number, it might actually be better than expectations which wouldn't help Bond prices. But we see more downward revisions and a potentially significant uptick in the unemployment rate, which will both work towards improved pricing.
On the technical side, both the 200-day and 50-day Moving Averages are near the same level, creating a strong dual layer of support. This floor has already been tested this morning and prices currently sit right at this important threshold. Although the Bond is down this morning we would like to be patient, float and look for an improvement tomorrow morning. We feel both fundamental and technical factors point towards floating into tomorrow's Jobs report and a continuation of the recent uptrend
Thanks,
Greg Adelman
Midwest Home Center LLC.
715-483-0012
612-735-4414 cell
612-395-5444 fax
www.midwesthomecenter.com
Comments (0)Subscribe to CommentsComment