Market Update:
Summary:
Today’s markets are relatively quiet due to the national day of mourning and early bond market close, but all eyes are on tomorrow’s Jobs Report. An upside surprise in job gains or a dip in unemployment could push bond yields higher, while weaker-than-expected data might reinforce the Fed’s caution and keep yields capped. Mortgage Bonds are benefiting from the current environment, and many analysts are leaning toward locking rates to hedge against the potential volatility once the labor data hits.
MORE INFO:
Stock Market: Closed all day in observance of the national day of mourning for President Jimmy Carter.
Bond Market: Closing at 2:00 p.m. ET.
Mortgage Bonds and Treasury Yields
Mortgage Bonds: Slightly higher on the day. Improved sentiment stems from dovish signals in the most recent Federal Reserve minutes.
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0-Year Treasury Yield: Down about 4 basis points (bps) to around 4.65%, remaining below a key resistance of approximately 4.735%.
Should tomorrow’s economic data (particularly the Jobs Report) come in stronger than expected, yields could challenge that 4.735% level and potentially climb toward 5%.
Fed Minutes Insights
The recently released minutes from the December 18 Fed Meeting offered the following takeaways:
Future Rate Cuts Adjusted: The Fed removed two projected rate cuts previously penciled in for 2025, reflecting lingering uncertainty around macroeconomic conditions.
Placeholder Forecasts: Several committee members indicated they are using “placeholder assumptions” due to unpredictability in trade, immigration, and overall policy under President Trump.
Inflation Path: The committee still anticipates a gradual return to the 2% inflation target, although it may take longer than originally projected given ongoing uncertainties.
Labor Market: No immediate signs of substantial deterioration, but “high uncertainty” persists.
Policy Outlook: Fed officials generally hinted that the committee is at or near a point at which slowing the pace of policy easing would be appropriate. Unless the unemployment rate spikes above 4.4% (seen as unlikely), the Fed may pause rate adjustments at their next meeting later this month.
Labor Market Watch
Tomorrow’s Jobs Report (BLS):
Consensus expectation: ~160,000 new jobs for December.
Unemployment rate: Projected to hold at 4.2%.
Historically, BLS data can be subject to significant revisions, so markets may see volatility if actual numbers deviate substantially.
ADP Employment Report (Wednesday): While it missed consensus, ADP’s private-sector data have not been closely tracking official BLS numbers. Overstated job growth followed by downward revisions has occasionally pressured bond markets in recent months.
Broader Market Context
Global Equities (previous close): Mixed performance amid global growth concerns and geopolitical uncertainties; foreign markets are open, but U.S. participants are sidelined due to the closure.
Oil Prices: Slightly softer, with some analysts citing concerns of slowing demand in parts of Asia.
Dollar Index (DXY): Range-bound as traders await fresh U.S. economic data. Any large deviations in inflation or job growth readings could move the currency meaningfully.
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