Big Jobs Friday surprises markets with strong November data

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Published Date 12/2/2022

Yesterday treasuries improved, the 10 yr dropped 10 bps and MBS prices increased 30 bps. Rate markets were still reacting to Jerome Powell’s speech on Wednesday confirming the Fed would slow its rate increases. Also supporting treasuries and mortgages, another weak manufacturing measurement, ISM and PMI both now under 50 that implies contraction. Somewhat unexpected ahead of this morning’s Nov employment data. At 8:30 am ET Nov employment hit, the reaction dropped the stock indexes. The immediate reaction increased the 10 yr 10 bps, back to where the 10 traded on Wednesday, MBS prices increased 77 bps yesterday, the initial reaction dropped the prices 75 bps. When Powell spoke on Wednesday markets took his remarks that the Fed would ease and the economic outlook and inflation would slow, the job gains today and the big increase in earnings reported today removes some of that optimism and is a reminder the Fed has a while to go before inflation falls to 2.0%.

Nov unemployment rate 3.7% as anticipated. Job gains were stronger than forecasts, average hourly earnings much stronger than thought; m/m +0.6% against 0.3% expected, yr/yr 5.1% on estimates of 4.6%; October yr/yr earnings revised from 4.7% to 4.9%. Inflation in wages and the labor participation rate fell to 62.1, lower than 62.3% and lower than in October (62.2%). Summing, the Nov employment report was much hotter than markets were expecting; the DJIA dropped 400 points on the reaction. The stronger than thought job gains will change the outlooks for the Fed that drove rates lower the past two days.

At 9:30 am the DJIA opened -302, NASDAQ -163, S&P -44. 10 yr at 9:30 am 3.58% +7 bps. FNMA 5.5 30 yr coupon at 9:30 am -47 bps, -25 bps from 9:30 am yesterday. Yesterday MBS prices improved in the afternoon, ending the session 30 bps better than 9:30 am levels.

Nov auto sales later today, not a main mover, expected 14.7 mil.

Stronger job growth sets up caution about how high the Fed will have to go; volatility in financial markets on a day-to-day basis will continue until the next FOMC meeting in two weeks. The wider outlook still has the Fed prepared to increase the FF rate by 100 bps.

Source: TBWS

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