Market Update:
Summary
The December Jobs Report exceeded expectations across the board, putting upward pressure on yields and downward pressure on bond prices. Though mortgage bonds have stabilized somewhat, the market remains sensitive to new inflation readings. The next few days’ data (PPI, CPI, and Retail Sales) will be crucial in shaping sentiment about the Fed’s next moves.
More Information:
Reaction to December Jobs Report
Headline Surprise: The Bureau of Labor Statistics (BLS) reported 256,000 new jobs for December—far exceeding the consensus estimate of ~160,000. The prior two months were revised up by a combined 8,000.
Seasonal Factors: Before seasonal adjustments, data showed a net loss of 81,000 jobs. However, seasonal adjustments brought that to +256,000, reflecting year-end hiring patterns.
Birth/Death Model: Traditionally watched for inflating job counts, the model had minimal impact this time, recording slight job losses.
Unemployment Rate: Dropped from 4.2% to 4.1%. The Household Survey recorded 478,000 job gains, with both unemployed persons and the labor force decreasing by 243,000.
Job Quality: Most gains were among individuals under 24 (often part-time or seasonal). Full-time jobs rose by 87,000, while part-time roles accounted for 247,000.
Wages and Inflation: Average hourly earnings rose 0.3% for December and increased 3.9% year-over-year—a tenth lower than the prior 4% figure, suggesting slightly easing wage pressures.
Bond and Mortgage Markets
Mortgage Bonds: Trading lower following the strong Jobs Report but are off their worst levels.
Treasury Yields: The 10-year Treasury yield briefly broke above the key technical level near 4.735% (“Danger Zone”) but has since dipped back below. Should yields close convincingly above that threshold, the market could test 5%.
Support Levels: Bonds are testing 99.87 as near-term support. A clear break below could bring an additional 20 basis points of weakness.
Equity Markets
Stocks: Also down on concerns that robust labor-market data might keep Federal Reserve policy tighter for longer. Strong job creation and a lower unemployment rate raise the possibility that the Fed may hold off on any near-term rate cuts.
Fed & Policy Outlook
With the job market still healthy, some Fed officials may grow more cautious about easing policy. However, markets will also look to upcoming inflation data to gauge how persistent price pressures are.
Economic Calendar Highlights (Week Ahead)
Tuesday: Producer Price Index (PPI)
Wednesday: Consumer Price Index (CPI), MBA Mortgage Applications, Federal Reserve Beige Book
Thursday: Retail Sales, Initial Jobless Claims, NAHB Housing Market Index
Friday: Housing Starts and Building Permits
Technical Analysis & Strategy
Mortgage Rate Lock/Floating: Many analysts locked ahead of the Jobs Report to avoid volatility. With the 10-year yield dipping back below critical resistance, there’s cautious optimism—but if yields again breach 4.735%, a run to 5% is possible.
Equity Investors: Keeping a close eye on whether strong employment data translates into higher inflation or additional Fed hawkishness—both potential headwinds for stocks.
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