The economy has added an average 210,000 jobs a month this year, down from last year’s strong pace of 260,000 but still healthy enough to satisfy Janet Yellen. Private-sector workers, on average, earned $25.25 an hour in November, up 2.3% from a year prior indicating workers are gaining leverage as unemployment falls and the labor market tightens. The construction industry led last month’s job creation, adding 46,000 jobs. Retailers added 31,000.
Yesterday the ECB’s credibility was brought into question; the stimulus announced was less than what Mario Draghi had led markets to believe since his remarks last month. No additional monthly bond purchases just a six month extension of the present €60B a month. Given the disappointment in markets yesterday it is clear markets were expecting something in the neighborhood of €80B per month. Stock markets were hit, interest rates increased in Europe and the US , the dollar crumbled against the euro currency. The Fed is on deck, if there is no FF increase on the 16th of this month markets will be left in confusion, suspicion and chaos.
Market reaction to the employment data initially sent rates higher and prices lower but quickly saw some minor recoveries. The 10 yr yield hit 2.36% +3 bps frm yesterday’s close and right on the high yield back on Nov 9th on the October employment report before the three week decline. MBS prices started 15 bps lower but also flipped with treasuries. Yesterday’s selling in stocks and rate markets was a near term over-reaction; although the direction was understandable the amount of selling suggested some kind of technical panic.
At 9:30 the DJIA, after initially trading lower in the futures markets, opened +65, NASDAQ +13, S&P +8. The10 yr note yield 2.30% -3 bps frm yesterday’s sell-off. FNMA 3.5 30 yr coupon +19 bps frm yesterday’s close and -12 bps frm 9:30 yesterday.
The Oct US trade deficit expected at -$40.6B was -$43.9B.
Some improvement this morning but markets are still subject to increased volatility now. Expect market volatility in stock and bond markets next week. Technicals were heavily damaged yesterday, and with the uncertainty and volatility hanging over markets presently we suggest taking advantage of any price improvements to lock in deals now.