Kind of a goldilocks report (media buzz word this morning); BLS said unemployment was 5.4% in April as expected, the lowest since May 2008, non-farm jobs +223K as expected but March jobs revised frm +126K to +85K, private jobs 213K fractionally off 220K expected. Average hourly earnings slightly weaker at +0.1% against +0.2% expected. Labor participation rate 62.8% frm 62.7% in March but remains weak historically; the U-6 unemployment rate 10.8% the lowest since August 2008 (workers in part-time jobs or too discouraged to look for work). Construction companies took on 45,000 workers in April, the most since January 2014. A nice increase, some initial comments pointed the increase to the housing sector however we don’t completely agree the increase was in residential construction. Many ‘new’ construction jobs were in roads and infrastructure work; not all construction jobs are in housing. Not much increase in manufacturing or retail. Mining sector, covering energy industries, fell by 15,000. The initial reaction pushed US stock indexes higher and interest rates lower.
The report appears to confirm that Q1 weakness was a blip due to weather and the West Coast port strike. Trade pushing stock indexes higher and improved MBS prices and the 10 yr note rate but not sure the improvements will hold through the day. Although average hourly earnings were +0.1% weaker than the normal 0.2% increase that is always the forecast, wages increased 2.2% yr/yr, not enough to worry about inflation.
Mother’s Day rally; the DJIA opened +203, NASDAQ +54, S&P +20. 10 yr at 9:30 2.11% -7 bps frm yesterday’s close. 30 yr FNMA 3.0 coupon +41 bps frm yesterday’s close and 63 bps better than at 9:30 yesterday. The summation to the employment report this morning; the Fed is not likely to increase rates in June with most now talking Sept at the earliest. The bond and MBS markets improving but mostly because as we have noted the markets were very oversold for the near term after 9 sessions of increasing rates and declining MBS prices. The improvements in MBSs and treasuries yesterday and this morning is not a trend change; it is a relief move in oversold markets. To change me to bullish again the 10 yr has to move below 2.00% and I do not expect that to occur. The gains now should be used to get deals locked especially if they have been floated recently.
The monthly employment data this morning followed its usual path of volatility, this morning on the lower job growth in March than originally thought and wage increases remain mostly flat. This go round, huge price gains. Technically still bearish so let’s keep it in perspective. It is a gift that should be taken advantage of. The 10 has to close under 2.00% to change our wider perspective for lower rates; the FNMA 3.0 May coupon must move above 101.87 (101.53 presently).