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MBS Highway - Daily Update 10/7/2022

Current position: Continue Locking


The market will be closed on Monday in observance of the Columbus Day Holiday. Our office will be closed and there will be no morning update.


Stocks and Mortgage Bonds are both lower after the Bureau of Labor Statistics (BLS) reported that were 263,000 jobs created in September, which was just above expectations of 250,000, but the smallest gain of the last 6 months. There were also 11,000 positive revisions to July and August. Almost all of the gains came from those 45 and older, while many of the other categories saw losses.


The Unemployment Rate decreased from 3.7% back down to 3.5%, which was lower than expectations of 3.7%. The unemployment rate comes from the household survey, which has its own job creation component. This report showed 204,000 job creations, while the labor force decreased by 57,000. For those reasons, the unemployment rate decreased, but for the wrong reasons. As a result, the labor force participation rate decreased from 0.1% to 62.3%.


The 3.5% unemployment rate is the U-3, which is what most people look at, and it removes individuals who are not actively searching for a job - There are around 5.8 million people that are not being counted that "want a job" but have not looked in the last four weeks.


The U-6 all - in unemployment rate, which adds back all these individuals, decreased from 7.0% to 6.7%.


As a result of the lower unemployment rate, Stocks and Bonds sold off because this continues to give the Fed cover to tighten and hike rates.


Average hourly earnings were up 0.3% in September and are up 5% year over year. Average weekly earnings were up 0.3% from the previous month and are up 4.1% year over year.



Next week is an important week that will be difficult to navigate - The markets will be closed on Monday for the Columbus Day Holiday, followed by a market moving 10-year Auction on Wednesday at 1:00 pm ET. An hour after the auction, the Fed Minutes from the last Fed Meeting will be released, where we know they were talking tough on inflation. The next morning at 8:30 am ET, the Consumer Price Index report will be released. The problem with that report is that it's for September, which means it replaces the very low September 2021 reading of 0.25%...so inflation may go in the wrong direction and rise. Going back to the auction - What investor is going to want to invest in 10 - year Treasuries when pricing may move lower with the Fed Minutes right after and a potentially higher CPI report the next day? This could cause some turbulence and pressure in the Bond market.


Mortgage Bonds are now testing support at 97, after breaking beneath it earlier today. While this level appears to be holding for now, next week may be a tough one for the Bond market. The 10-year is trading at 3.90% and has room to move higher to test the recent highs at 4%. Continue Locking with the potentially tough week ahead.


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