Mortgage Bonds are trading slightly higher and have made a break above the important ceiling of resistance at the 200-day Moving Average. A convincing break above this important barrier would signal a major trend shift towards lower rates. It is highly probable that the results of tomorrow’s Jobs Report will be the deciding factor whether Mortgage Bonds can make the break above the 200-day MA or if they will be pushed back towards worse pricing.
Some good news on Productivity is helping Bond prices this morning, as productivity for the second quarter was revised higher to 4.3% from a previous reading of 2.2% and well above expectations of 3.5%. Higher productivity is good news for the economy and inflation as it shows employers are able to squeeze more output from hours being worked. And if employers can produce more goods from their existing workforce, without a need to hire or increase pay, it keeps wage based inflation down. Within the Productivity Report, Unit labor costs — a key inflation gauge – fell 0.5%, revised down from a gain of 1.3%, representing the biggest decrease since the third quarter of 2007. Lower Unit Labor Costs means less of a threat for wage-based inflation and this is good news for Bonds.
Initial Jobless Claims came in at 444,000, significantly higher than expectations of 420,000. And the ADP Report showed a loss of 33,000 private sector jobs, pretty much in line with expectations. After factoring in the usual 20,000 new government jobs added to the economy, the ADP Report suggests tomorrow’s official Jobs Report will come in somewhere near -13,000. Expectations for tomorrow’s Non farm payrolls is -75,000.