The financial markets continue to provide valuable insights into the trajectory of the economy, employment trends, and inflationary pressures. Here’s a breakdown of today’s key updates and what they mean for borrowers, investors, and mortgage professionals.
Stocks and Bonds Movement
Stocks and mortgage bonds started the day slightly lower. This downward momentum reflects ongoing market uncertainty, particularly as investors await more concrete economic signals. Mortgage bond performance is critical because it directly influences mortgage rates. If bonds continue to trend lower, rates may increase, creating additional challenges for borrowers.
Federal Reserve Insights
Later today, the Federal Reserve will release the minutes from its December meeting. This is a pivotal update, as the Fed removed two projected rate cuts from its 2025 outlook during this session. If the minutes hint at further rate hikes or sustained tightening, mortgage bonds could face additional pressure, pushing rates higher.
December ADP Employment Report
The latest ADP Employment Report showed 122,000 new jobs in December, falling short of the 140,000 expected. Key insights from the report include:
Sector Performance: The services sector added 112,000 jobs, while the goods sector contributed just 10,000 jobs. Small businesses added only 5,000 jobs, continuing a trend of minimal contributions from this group.
Wage Growth: Year-over-year wage growth for job stayers decelerated to 4.6%, its lowest since July 2021. This signals easing pressure on inflation from wage increases.
Labor Market Concerns: Nela Richardson of ADP noted that job growth appears to be slowing, with disruptions likely in 2025 as labor demand shifts.
Implications for Borrowers: Slower wage growth and tepid job creation could lead to softer inflation, which might encourage the Fed to consider easing its monetary stance later in 2025. However, borrowers should be prepared for rate fluctuations in the interim.
Comments from Fed Governor Waller
Fed Governor Christopher Waller expressed confidence that inflation will continue easing in 2025, potentially paving the way for interest rate cuts. However, he emphasized the gradual nature of this improvement, cautioning against assuming rapid progress.
Inflation Drivers: Waller highlighted the role of housing services and nonmarket services in driving inflation, noting their limited reliability as indicators of broader economic trends.
Policy Outlook: Waller’s comments suggest a more dovish stance, raising hopes for a more borrower-friendly rate environment later this year.
Takeaway: Borrowers may see relief in mortgage rates by late 2025, but current rate levels will likely persist in the short term.
Initial Jobless Claims
Initial jobless claims fell to 201,000 last week, signaling continued resilience in the labor market despite broader economic challenges. However, continuing claims rose, which may indicate a slowing pace of job recovery.
Impact on Borrowers: A steady labor market supports overall economic stability, but increasing claims could hint at emerging weaknesses, which could weigh on future Fed decisions.
Technical Analysis: Mortgage Bonds
Mortgage bonds are testing a critical floor of support at 100.17. If this level breaks, bonds could drop further, driving mortgage rates higher. The 10-year Treasury yield is approaching a ceiling of 4.735%, a key resistance level.
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