If the monthly employment data ever came close to forecasts the world would stop rotating. The January Unemployment Rate fell to 8.3% from 8.5% in December and was expected unchanged in January. Non-Farm Jobs increased 243K with forecasts up +135K; Non-Farm Private Jobs were +257K with forecasts up +170K. November Non-Farm Jobs were revised from up +100K to +157K, Factory Jobs were +50K and Service Producing Jobs were +162K. As for the decline in the Unemployment Rate, the implication is that many more unemployed have stopped looking for a job. The reaction in financial markets was swift and the 10-Year Note yield increased 9 basis points to 1.90%, MBS prices declined 8/32 (.25 bp) as of 900am. Stock indexes rallied, up 110 points on the DJIA and also rallied Europe’s markets. The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey.
A week ago at the conclusion of the FOMC meeting Bernanke said unemployment was not likely to decline as the economy was faltering. The Federal Reserve was so certain about the sluggish outlook it announced it would keep rates low until the end of 2014. The Federal Reserve isn’t likely to back off their outlook on one employment report but trading this morning in the FF futures market is marked to the Federal Reserve increasing the FF rate at the end of 2013. Markets now consider whether the Federal Reserve will increase buying of Treasury’s and MBSs. The Federal Reserve purchased $2.3 trillion of debt in two rounds of quantitative easing. At the conclusion of the Jan 25th FOMC meeting Bernanke said he was considering another round of QE if the economy isn’t recovering. After the employment report another easing move doesn’t seem likely now.
You can skip this paragraph if you have read it before. Greek officials are out this morning saying a deal is almost complete with investors to fend off defaults by getting another infusion of cash. For all of three weeks the deal has “almost” been completed. Markets have become numb to the continual news that has had no substance; everyone now is from Missouri.
At 930am the DJIA opened up +110, the 10-Year Note down -27/32 at 1.92% (+10 bps) and MBS prices for 30-Year mortgages down -12/32 (.37 bps). Technically, the 10-Year Note has some support at 1.93%, the high so far today.
At 1000am the January ISM Services Sector Index, expected at 53.0 from 52.6, as released the index jumped to 56.8 with every component better. New Orders at 59.4 from 54.6, Employment at 57.4 from 49.8 and Prices Paid at 63.5 from 62.0. The 10-Year Note and mortgages saw more selling while the DJIA popped up more.
Also at 1000am December Factory Orders, thought to be up +1.5%, increased 1.1% but November was revised to up +2.2% from +1.8%.
We have noticed that the 10-Year Note had technical resistance at 1.80%,the low yield back in mid-December; it failed so far. The low on the 10-Year Note was 1.81%, triggered by the January Employment report this morning the 10-Year Note yield has moved to 1.93%, up 11 basis points this morning. On numerous occasions I have commented that the 10-Year Note has a strong recent history that it can’t sustain long under 2.00% and moves from lows at 1.80% have all been swift. The 10-Year Note has technical support at 1.93%.
The data this morning; the Employment and the ISM Services, were surprisingly stronger than markets were expecting. The 10-Year Note is now likely to increase to test 2.00%. Better economic outlook today with the data and no safety moves to treasuries over Europe at the moment.
