Big Day

Jobs Day

And the market didn’t like the data early.  UMBS were down 16 bps early on the 6.0 with the 5.5 down 28

Nonfarm Payrolls = 216k vs 170k f’cast   [173k prev]

Unemployment Rate = 3.7% vs 3.8% f’cast

Participation rate = down 0.3% (implies higher unemployment)

Net Revisions are -71 from previous 2 months

Avg YoY earnings are +4.41% vs +3.9% est

216k may not be the world’s largest beat versus a 170k forecast, but it is certainly not the short of economic evidence of a tighter Fed policy that leads to high probabilities of lower short term rates in the near future.  The saving grace–if there is any–in this report is the effective uptick in unemployment.

Yes, the number is lower at the headline level, but a 0.3% decrease in participation suggests unemployment would have risen 0.3% if participation remained unchanged (that would put it at 4.0% today).

Bonds don’t love the news, but they’re not screaming higher at a ridiculous pace.

ISM Services PMI = 50.6 vs 52.6 f’cast  [52.7 prev]

ISM Services Employment = lowest since July 2020

ISM Service Prices = 57.4 vs 58.3 prev

ISM Services is one of the biggest market movers after NFP and CPI.  Today’s example is supporting that claim.  Bonds have actually moved more in response to this data than this morning’s NFP.

It has happened before, but it’s not common: those Fridays where bonds move in one direction in response to the jobs report only to move even more in the opposite direction after the ISM Non-Manufacturing Index.  Considering that both moves were ultimately erased today, we don’t feel too compelled to overanalyze, but ISM definitely had the upper hand.  Chalk that up to the jobs report being not as strong as the headline might suggest and to ISM’s employment component being staggeringly weaker. Bonds escaped with minimal damage–especially MBS as they don’t have to worry about an auction cycle like Treasuries next week.

UMBS 6.0 ended the day Flat at 101.14