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MBS Highway - Daily Updates 11/04/2022

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Current position: Carefully Floating

Stocks and Mortgage Bonds lower after the Bureau of Labor Statistics (BLS) reported that were 261,000 jobs created in October, which was just above expectations of 200,000, but the smallest gain of the last 6 months. There were also 29,000 positive revisions to August and September. While this figure seemed strong, it's not what it seems. Almost 500k job creations came from the birth/death ratio, which uses modeling around the creation and death of businesses, and can be quite volatile and miss the mark. When looking at the household survey, there were significant job losses, most of which came from your typical higher wage earners in the 45-54 age group.

The Unemployment Rate increased from 3.5% to 3.7%, higher than expectations of 3.6%. The unemployment rate comes from the household survey, which has its own job creation component. This report showed 328,000 job losses, while the labor force decreased by 22,000. Because the job losses far outweighed those leaving the labor force, the unemployment rate increased by 0.2%. The labor force participation rate decreased from 0.1% to 62.2%.

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 5.7 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, increased from 6.7% to 6.8%.

Average hourly earnings were up 0.4% in October and are up 4.7% year over year, which is the lowest level in quite some time and shows less wage-pressured inflation. Average weekly earnings were up 0.4% from the previous month and are up 3.8% year over year.

We anticipate the upcoming Jobs Reports to be weaker, as anecdotally, we have heard from companies like Stripe, PayPal, and Lyft, who all said that their headcount would be lower at the end of the year than at the beginning. Additionally, Amazon said that they were going to be instating a hiring freeze.

Yesterday, the ISM Manufacturing Index showed that growth rates and business levels have cooled. Additionally, due to uncertainty in economic conditions, some companies are holding off on backfilling open positions. Supply chain and logistical issues are not as encumbering as they were earlier in the year, which sounds deflationary from a shipping cost aspect.

Next Week

Next Tuesday will be the Midterm elections, the results of which can be potentially market moving. On Wednesday there will be a 10 - Year Auction and Thursday we'll be getting CPI for October and a 30 - Year Bond Auction.

Technical Analysis

Mortgage Bonds continue to trade in a wide range between support at 96.89 and overhead resistance at the stubborn 25 - day Moving Average. After digesting the true weakness in the Jobs Report, Bonds are well off their worst levels and moving higher within their range, with a lot of room until reaching the aforementioned ceiling. The 10 - year is trading at 2.14% and although still higher on the day, is well off the higher levels seen earlier this morning. Continue Floating.


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