May 7th, 2011 6:55 AM by Lehel S.
The monthly BLS employment report generally does not disappoint when it comes to volatility and data that is well off the mark; once again this morning it held to its pattern. Non-farm payrolls were widely expected up 185K to 200K, as reported NFP jobs increased 244K in April. Non-farm private jobs were expected up 200K, as reported up 268K, the biggest monthly increase since Feb 2006. The unemployment rate was expected unchanged at 8.8%, as reported up to 9.0%. The average hourly earnings was thought up 0.2%, as reported +0.1%.
Employment in April was up across the band of specific jobs; retail jobs increased 57,100 the largest increase since April of 2000; manufacturing +29K, goods producing +44K, service-providing +224K, government jobs down 24K. Those unemployed fro more than 27 weeks declined to 5.839 mil frm 6.122 mil in March. The U-6 unemployment rate at 15.9%; U-6 measures total unemployment, plus all personnel marginally attached to labor force and total employed part time plus all persons marginally employed.
The obvious reaction to the stronger employment report sent rate markets higher in rate, lower in prices. Although the 10 yr note rate jumped from 3.16% at the close yesterday, at 9:00 it was up to 3.22% essentially erasing all of the gains yesterday. Mortgage prices yesterday were up 16/32 (.50 bp), at 9:15 this morning down 10/32 (.31 bp).
Treasuries and mortgage rates moving lower, mostly safety moves as commodity prices collapsing after the two month rallies that pushed most all commodity prices to excessive levels forcing trading exchanges to move margins higher. The commodity price increases were driven by growing concerns inflation would take hold, became well overbought by speculators; with exchanges increasing margins many were forced out driving prices down hard. Gold, silver, oil lead the way lower yesterday in mass liquidation adding to the recent decline in rates.
The recent decline in rates is reflecting a more placid view of inflation which had been gaining momentum in the markets for the past two month, and the reality that the US economy isn't and won't be as strong as was thought earlier this year. In Europe the ECB started increasing rates a month ago to combat inflationary pressures and until yesterday's ECB meeting it was consensus that the bank would continue. Jean-Claude Trichet, ECB head, implied yesterday that the bank may not increase rates as inflation pressures are expected to ease. Here in the US not many were buying into Bernanke's view that commodity prices were "transitory" and wouldn't drive inflation up, yesterday's commodity sell-off made a lot of believers.
Weaker expectations for growth in the economy raising concerns that equity markets may be too lofty, lowering inflation fears, and the momentary belief the Fed will keep rates low and possibly have to step up for a Q 2.5; all have been catalysts for the recent decline in rates. While we all applaud it, the bond market still has a lot to consider if rates are to remain at these lows.
This morning crude oil continues to decline, silver lower but gold higher. The DJIA opened +107; the 10 yr -17/32 3.22% +6 bp and mortgage prices -9/32 (.28 bp). (see below for 10:00 levels). The recent decline in rates has the bond market overbought technically, expect some consolidation here and some minor back-up in rates. The next week or so will be marked with an increase in volatility with wider intraday trading ranges; however the wider outlook will likely remain bullish with the uncertainty about the economy and the commodity markets, already this morning the bond and mortgage markets are well off initial low prices on the employment data.
Later this afternoon at 3:00 March consumer credit data; one of our favorite measurements of consumer sentiment. Forecasts are for credit to have expanded by $5B.