The July JOLTS report was lower than expected

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Published Date 9/4/2024

A nice improvement yesterday in rates, not so good for equity markets. The 10 year note fell 8 bps, the 2 year note -6 bps; MBS prices gained 20 bps. The move a little surprising with key data points the remainder of this week with August employment looming on Friday. At least for the moment markets are gathering around big cuts in the FF rate between now and the end of the year, even heard some thinking as much as a total of 200 bps cuts over the next 12 months. That is a lot of speculation, that amount of cutting would be the most since the recession back in the eighties. Some of that optimism yesterday may have been driven by the huge decline in the stock indexes. While it would be great if the Fed were to cut that much, there isn’t much conviction behind it and the economy would be in recession; every move in markets must have a reason, whether true or speculation. Already this morning some volatility, overnight and early this morning the 10 year note yield hit 3.81% -3 bps, by 8:30 am ET the note came back to unchanged from yesterday and MBS prices opened generally unchanged.

The key to the number and depth of rate cuts is how the employment sector does, Powell shifted his concern, from inflation to employment. The July employment data a month ago was a huge shock, job growth plummeted to just 117K. The unemployment rate thought to be unchanged from June at 4.1% increased to 4.3%. Payrolls (NFP) expected at 180K from 179K increased just 114K. Private jobs in June 136K, the estimate for July 155k, as reported +97K. July average hourly earnings +0.2% against +0.3%, year/year average earnings declined from 3.8% in June (revised from 3.9%) fell to 3.6%. The unemployment rate rose to the highest level in nearly three years. On Friday we will get the August employment data.

At 9:30 am the DJIA opened -53, NASDAQ -119, S&P -17. 10 year 3.82% -1 bp. FNMA 5.5 30 year coupon at 9:30 am +4 bps from yesterday’s close and +5 bp from 9:30 am yesterday; the 6.0 coupon unchanged from yesterday’s close and unchanged From yesterday at 9:30 am.

At 10 am July JOLTS job openings expected to have dipped from 8.184 million to 8.10 million, as released job openings plunged to 7.76 million. Adding to the concerns over employment. The initial reaction sent rates lower, the 10 year note at its lowest level in two weeks at 3.78% -5 bps (prior to the data the 10 at 3.84%). MBS prices at 10 am +16 bps, from +5 bp at 9:30 am. The surprising decline adds more emphasis on the declining employment sector that worries Powell.

Source: TBWS

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