Friday’s bond market has opened well in negative territory following surprisingly strong economic news. Stocks are showing losses even though the data indicates stronger economic activity, pushing the Dow lower by 171 points and the Nasdaq down 142 points. The bond market is currently down 39/32 (3.55%), which should cause this morning’s mortgage rates to be approximately .500 - .625 of a discount point higher than Thursday’s early pricing.
Today’s major economic release was January’s Employment report that showed the U.S. unemployment rate fell 0.1% to 3.4% last month when it was widely expected to move a bit higher. The eye-popping number was the 517,000 new payrolls, greatly exceeding forecasts of 190,000. These headlines are leaving many analysts and traders scratching their heads trying to figure out how this is possible after the Fed raised key short-term interest rates seven times last year, most of which are considered to be sizable moves. What this report also does is give the Fed the greenlight to keep raising rates since their previous actions apparently aren’t hurting the labor market. It is this point that is likely the source of this morning’s stock losses.
The earnings data in the report showed a 0.3% rise, matching expectations. The bond market has been very sensitive to this reading since inflation became an issue. The lack of a surprise in this reading is causing bonds to trade on the other two headlines from the report, hence the upward move in rates today.
Next week has little scheduled that is expected to influence mortgage rates. The calendar only shows two Treasury auctions midweek and a consumer confidence related index late in the week. Now that the FOMC meeting is behind us, we will start seeing more Fed member speaking engagements that could affect the markets, especially on days that lack economic releases. Look for details on all of next week’s activities in Sunday evening’s weekly preview.