What a huge miss on the April employment data. The unemployment rate expected to drop from 6.0% in March to 5.8%, the rate increased to 6.1%. Non-farm jobs expected at a million new jobs hardly improved with just 266K. Private jobs were thought to have increased 893K, increased just 218K. Manufacturing jobs expected to have grown by 55K declined 18K. Average hourly earnings increased 0.7% with forecasts of 0.0%;
yr./yr. earnings +0.3% on forecasts of -0.4%.
This employment data miss, the widest miss ever; all across the data, nothing was even close to forecasts. The initial reaction sent the 10
yr. note yield to 1.50%, down 6 bps, and MBS prices +23 bps (see below for current levels).
Job gains accelerated in leisure and hospitality, employment at temporary-help agencies, and transportation and warehousing declined sharply. It isn’t news that would-be employers can’t hire workers as needed; the government’s largesse continues to pay workers more to not work than working. Time to shut off that spigot, The governor on Montana yesterday told the government the state won’t take the extra $300.00/m for those on unemployment; his remark, he stated he needs workers back in the restaurant and leisure industries as the state tourist season begins. He will pay a one-time $1200.00 if they stop collecting unemployment benefits and work for at least four weeks. South Carolina plans to terminate all federal and pandemic-related jobless programs at the end of June.
The reaction in the bond market seems a little misguided, focusing on the increase in the unemployment rate to 6.1% from 5.8% expected. The bond market’s focus should pay more attention to the increase in average hourly earnings and the increasing comments from potential employers that want to hire. It is becoming a drag on growth and what will be increasing wages to incentivize workers to come back. If wages have to increase, the bond market is missing the link that has kept rates down with inflation forecasts lowered recently even as asset prices, commodity prices continue to rise. The jump in earnings and the decline in job growth suggest that after flat wages for months, the likelihood of higher wages has increased. Today though, the trade-focused more on a potential decline in economic growth will offset the potential of higher interest rates.
At 9:30 am ET, the DJIA opened down just 50, NASDAQ +64, S&P +2 bps. 10
yr. at 9:30 am 1.53%. FNMA 2.5 30 yr. coupon after jumping 23 bps fell back to +14 bps from yesterday’s close, and +33 bps from 9:30 am yesterday.
Looking at how the 10 yr. is reacting after the knee-jerk reaction, its yield after dropping to 1.50%, at 10:00 am back to 1.55%, down just 1 bp from yesterday. That makes more sense.
The technical reaction on the 10 yr. today is bullish but still overall neutral
after failing to hold initial declines (1.50%) now back to 1.54% at 10:00 am. MBS market remains strong, price +23 at 8:35 am, dropping down to +14bp and now back to +22 bps at 10:00 am ET.
PRICES @ 10:00 AM ET
10 yr. note: 1.53% -3 bp
5 yr. note: 0.74% -6 bp
2 Yr. note: 0.13% -3 bp
30 yr. bond: 2.23% -2 bp
Libor Rates: 1 mo. 0.095%; 3 mo. 0.162%; 6 mo. 0.200%; 1
yr. 0.273% (5/6/21)
30 yr. FNMA 2.0: @9:30 101.41 +22 bp (+23 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 104.14 +14 bp (+33 p from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.91 +6 bp (+19 bp from 9:30 yesterday)
Dollar/Yuan: $6.4367 -$0.0275
Dollar/Yen: 108.69 -0.40 yen
Dollar Index: 90.52 -0.43
Gold: $1838.10 +22.20
Bitcoin: 57,077 +1089
Crude Oil: $65.00 +$0.29
DJIA: 34,662 +113
NASDAQ: 13,764 +131
S&P 500: 4225 +24