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Current position: Floating Ahead of Tomorrow's Jobs Report
Stocks and Bonds are both continuing lower after the Fed Statement and Press conference yesterday.
The Fed Statement was as expected - The Fed hiked 75bp, bringing the Fed Funds Rate to 4.75%. They also changed their language and said, "In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
Immediately after the Statement was released, the Stock and Bond markets rallied, and it appeared the Fed would not only hike by a lesser 50bp in December but potentially pause soon. It also seemed that the Fed was finally getting it and understanding that their rate hikes operate on a lag and that they may be doing too much.
The Powell Press Conference was a different story - Powell confirmed that a slowdown was coming over the next two meetings, but he went on to say that it would be extremely premature to be thinking about pausing and that the Fed still has a way to go. He also said he would rather risk overdoing it and hiking too much, rather than underdoing it, as the Fed can always cut rates in the future. The markets, now seeing that a pause is not in the near future, sold off sharply.
Initial Jobless Claims
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, remained stable at 217,000. Continuing Claims, or those that continue to receive benefits after their initial claim, rose 47,000 to 1.485M and has been significantly rising over the past few weeks. The rise in continuing could mean it's harder to find a job once let go.
BLS Jobs Report Strategy / Technical Analysis
Tomorrow's Jobs Report is expected to show 200,000 job creations in the month of October and for the Unemployment Rate to increase from 3.5% to 3.6 %.
Mortgage Bonds are trading in a wide range between support at 96.89 and overhead resistance at the stubborn 25 - day Moving Average. The 10 - year appears to want to test the upper end of its range at 4.33% once again.
While the market technical does not look great, there is a chance the Jobs Report comes out weaker than anticipated, and if the employment picture weakens, it may force the Fed's hand. After being locked for the last three days, we can float into the release.