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MBS Highway Daily Updates 04/05/2023

Current position: Floating

Stocks are mixed, and mortgage bonds are trading near unchanged levels so far this morning, following a weaker than expected ADP Employment Report.

ADP Employment Report

ADP released their employment report, showing that there were only 142,000 job creations in the month of March, which was fewer than the 210,00 expected. February was revised higher by 19,000, but this report was still a miss.

Looking at the sectors, leisure and hospitality led the gains once again, adding 98,000 jobs. As we mentioned previously, those gains may be coming to an end soon. During COVID, there were roughly 10 million leisure and hospitality jobs lost, and we have been adding around 100k each month during the recovery. But we are now close to getting back to the trend pre-pandemic, which means there may not be much more in the way of job gains from the sector that has been adding the most. We also continue to see job openings drop in the sector, but that has not shown up in the job numbers just yet.

ADP also reported that annual pay for job stayers increased 6.9% year over year, down from 7.2% in the previous report. Job changers saw an average increase of 14.2%, down from 14.4%. While these figures are still high, they have been moderating and showing lower wage pressured inflation.

ADP said today, "Our March payroll data is one of several signals that the economy is slowing. Employers are pulling back from a year of strong hiring and pay growth after a three-month plateau that is inching down."

We have seen a disconnect between ADP and the BLS Jobs Report. Over the last 3 months, ADP has shown about 100k fewer job creations each month. If these two reports still correlate well over time, one would expect the BLS to come in softer than the 240,000 job gains expected on Friday.

Mortgage Applications

The MBA released their mortgage application data for last week, showing that purchases fell 3.5% last week, following four weeks in a row of gains. Purchases remained down 35% year over year.

Interest rates decreased slightly from 6.45% to 6.4%, which is about 1.5% higher than this time last year. Refinances fell 5.4% last week and are now down 59% year over year.

Technical Analysis

Mortgage bonds were able to close above their 200-day moving average yesterday and are trading in a new range between support at the 200-day and overhead resistance at 101.671. The 10-year is making big moves lower, now down to 3.28%, making a new interim low beneath the low set on March 24. Yields now have room to move lower until reaching 3.21%. Begin the day carefully floating.


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