Friday’s bond market has opened down slightly even though we saw a much stronger than expected payroll number in today’s Employment report. The stock markets are reacting favorably to the data, but also with somewhat of a muted response if you take into consideration this week’s heavy selling. The Dow is currently up 73 points while the Nasdaq has gained 44 points. The bond market is currently down 4/32 (2.16%), but due to strength late yesterday we should see an improvement in this morning’s mortgage rates of approximately .125 of a discount point if comparing to Thursday’s morning pricing.
Today’s major economic news was December’s Employment report at 8:30 AM ET. It showed that the unemployment rate remained at 5.0% last month as it was expected to do. The big surprise came in the payroll number that showed 292,000 new jobs were added to the economy, greatly exceeding forecasts of 200,000. There were upward revisions to October and November’s payrolls also that totaled 50,000 more jobs than previously thought. Those numbers make the report bad news for the bond and mortgage markets because the strengthening labor market indicates economic growth and makes additional Fed rate hikes in the immediate future more likely.
There was a bit of favorable news in the data though. That came in the average hourly earnings figure that showed wage growth was flat in the month when analysts were expecting to see a 0.2% increase. This number is good for bonds because rising wages translates into wage inflation that spreads to other parts of the economy. Since inflation erodes the value of a bond’s future fixed interest payments, making the securities less appealing to investors, bonds tend to thrive in low inflationary times. Overall, the report is clearly negative for mortgage rates, but the earnings figure is helping to soften the impact on this morning’s mortgage rates.
Next week has a handful of relevant economic reports scheduled for release in addition to a couple of Treasury auctions that may affect mortgage pricing. Two of the reports do carry a high significance in the markets. None of the week’s events are set for Monday or Tuesday, so expect to see this afternoon’s trading and any weekend news to influence the start of the week. Look for details on next week’s calendar in Sunday evening’s weekly preview.