Non-Farm Payrolls

“Well, I’m going down…down, down, down, down, down.” (Jeff Beck) The big news of the week — Bond prices went down, down, down, resulting in a sharp rise in interest rates to levels last seen in May 2011.

What caused bond prices to drop? Jobs, jobs, jobs. First it was Wednesday’s ADP Report, which showed an amazing 230,000 private jobs created, well above expectations of 180,000. Remember that good news is bad news for Bonds and rates — so this strong and positive economic reading ignited the selloff in bonds.

On Friday, the positive Jobs story was reconfirmed when the Bureau of Labor Statistics (BLS) reported the September Non-farm Payrolls number. The headline number showed a soft 134,000 jobs created. However, Hurricane Florence played a role at disrupting the figure and the markets discounted the reading. Grabbing the market’s attention were big upward revisions to the July and August numbers, which added another 87,000 jobs, while the unemployment rate fell to 3.7% — the lowest since the summer of ‘69.

Additionally, Fed Chairman Jerome Powell was quoted as saying that the U.S. economy “is too good to be true.” That comment pushed Stocks to all-time highs earlier in the week, at the expense of bonds.

After last week’s plunge in bond prices, which ushered in multi-year high yields and mortgage rates, financial markets and traders will have an important consumer inflation report to break down this week — the Consumer Price Index.

One of the dual mandates of the Federal Reserve is to maintain price stability or by managing inflation. You can bet the Fed will have eyes on the Consumer Price Index this Thursday.

If economic data continues to impress, it could take stocks higher at the expense of bonds. However, this past week, stocks stumbled a bit into the weekend in response to the sharp rise in rates. With higher rates come higher borrowing costs for corporations which can eat into profits and slow growth.

Key economic reports due this week:

  • The economic calendar is on the light side this week with the Producer Price Index on Wednesday followed by the Consumer Price Index on Thursday.
  • As usual, Weekly Initial Jobless Claims will be released on Thursday.
  • On Friday, Consumer Sentiment will be delivered.

If you or someone you know has any questions about home loan rates, please give me a call. I’d be happy to help.

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