Rate snapshot: Weekly jobless claims up, trade deficit better than expected

by MPA03 Jul 2014

Immediately prior to the 8:30 June employment report the 10 yr was unchanged at 2.63% and 30 yr MBS prices unchanged also.
June unemployment rate fell to 6.1% frm 6.3%; non-farm payrolls +288K, with revisions higher for May and April adding an additional 29K jobs to what had been reported; private jobs increased 262K frm 224K in May. The average hourly earnings +0.2% as expected, yr/yr +2.0%. The labor participation rate unchanged at 62.8% At 62.8; the share of population either working or looking for work remains around 30-year lows, a sign that many of the unemployed have given up their job searches. . The unemployment rate is the lowest since Sept.2008. The number of long-term unemployed Americans fell to 3.1 million, suggesting more jobs are becoming available. Factories took on the most workers in four months, while payrolls at private service providers climbed by the most since October 2012. job gains continue to be led by low-paying sectors. Retail added over 40,000 new jobs while leisure and hospitality added 39,000. Higher-paying sectors continued to lag behind in the jobs recovery. Manufacturing added 16,000 new jobs and construction added 6,000. An index gauging the breadth of private-industry hiring in June climbed to 64.8 from 62.9 a month earlier. June marked the first five-month stretch of job creation in excess of 200,000 since the boom years of the late 1990s.
Weekly jobless claims also reported at 8:30 were right on estimates, up 2K to 315K. The May US trade deficit also at 8:30 -$44.4B better than $-45.1B expected. Neither matter though with June employment holding court in the stock, bond and MBS markets.
The ECB didn’t add to last month’s stimulus program. The German 10 yr bund continued to fall in price as a result; down three days in a row, the longest run of declines in four weeks, matching the decline of the US 10 yr.
At 10:00 the final data this week; June ISM services sector index expected at 56.2 frm 56.3 in May. The index slightly weaker at 56.0; the components though were better. New orders index at 61.2 frm 60.5 last month, the employment component at 54.4 frm 52.4 adding more confirmation to the view the economy will likely grow at a 3.5% annual GDP rate after declining 2.9% in Q1.
The bellwether 10 yr note, driver for MBS rates, is trading above its 100 day average for the first time in two months (4/4/14). Obviously all of our technical models are now bearish. One after another, recent economic measurements have been better than expected; possibly as a result of the weak first quarter that had lowered economists’ forecasts. The data is better overall but still not roaring. These days any good news is welcome at the moment. Stock investors enjoying the higher run with the DJIA braking above 17K for the first time ever on the open this morning. At 9:30 the DJIA opened +46, NASDAQ +16, S&P +5; 10 yr 2.68% +5 bp and so far for the week the 10 up 14 bps in rate, 30 yr MBS rate +10 basis points; at 9:30 MBS price down 14 bps on the 4.0 coupon and -22 bps o the 3.5 coupon as investors that bought the 3.5 are getting out of the low coupon. No more 3.5 coupons for the immediate outlook. The 10 yr note rate is the highest since May 13 when Mario Draghi launched another stimulus for the EU and made a point of is concern the EU economies may be headed to deflation.
Markets will have an early close this afternoon ahead of tomorrow’s National Holiday.


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