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MBS Highway Daily Updates 03/09/2023

Current position: Floating Ahead of Tomorrow's Jobs Report

Make sure to take the MBS Highway Housing Survey to get a real-time read on the housing market, and feel free to share with referral partners for their input HERE.

There will be a bond coupon rollover after the close of the market today. This occurs each month because mortgage bonds are finite. They have an end term, such as 30 years. Therefore, each month, a new 30-year period begins. This new 30-day extension is reflected in an adjusted rollover price. This rollover does not impact your pricing.


Mortgage bonds and stocks are both higher following some weaker labor market data.

Yesterday's ADP Report

The ADP Employment Report showed that there were 242,000 jobs created in February, vs the 205,000 expected.


But once again, seasonal factors had a big impact. The raw data actually showed a 166K decline, which lines up in the top 25% of the weakest prints in the history of this survey.

On average, in February, the seasonal factors added 1.5 million jobs since 2010. This February, the factors increased the data by 1.8 million jobs. If the average seasonal adjustment would have applied to this February's NSA number, there would have been zero jobs created.

JOLTS

The Job Openings and Labor Turnover report showed that there were 10.8M job openings in January, which was above expectations, but down 410, 000 from December. Job openings have declined 1.2M from the peak.


Leisure and Hospitality shed 194k job openings, supporting what we said yesterday about there not being much left in job growth from that sector, which has been providing the biggest job gains of approximately 100k jobs per month.

Initial Jobless Claims / Challenger Job Cuts

Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, rose 21,000 to 211,000, the first reading above 200k since the beginning of January. Continuing Claims, or those that continue to receive benefits after their initial claim, rose 69,000 to $1.72M, matching the highest reading in 14 months.


This follows the Challenger job cut report for February, showing there were 78K job cuts, which was the highest for the month since 2009. Taking the January/February time frame, the number of job cuts is also the most since 2009.


While a lot of cuts came in technology, there were cuts in all 30 industries, which has not happened in 10 years.



CoreLogic Equity Report Q4

63% of homes have a mortgage; 37% are free and clear. That means 37% can move and not feel like they are giving up a low mortgage. Equity has risen 3.7% in Q4 vs. last year, while only 1.4% of all homes have negative equity, which is very low.

Jobs Report Strategy/Technical Analysis

Tomorrow's big BLS Jobs Report will be reported at 8:30 a.m. ET. The market is expecting 200,000 job creations and for the unemployment rate to remain at 3.4%.


Over the last six months, ADP has shown 200,000 job creations per month on average. During the last 5 months, the BLS has shown an average of 320,000 jobs created. If these two reports still correlate over time, we would expect the BLS to come in weaker.


When looking at the charts, bonds have been beaten down and are very oversold. If today's candle closes in the positive, there will be a confirmed bullish engulfing pattern, which is also positive. Of course, technical analysis will take a backseat to the jobs data, but we want to give bonds a chance to recover and hope that the data tomorrow comes in weaker than we anticipate. Float into tomorrow's jobs report.


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