Record unemployment, stocks jump higher, and rates flat

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Published Date 5/8/2020

April employment data this morning, the worst since the Depression, as expected. The initial reaction in the bond market pushed the 10 yr note yield higher to 0.66%, +2 bps; stock indexes were better before the 8:30 am ET data and held the gains after the report. Employment data released didn’t cause much change as it was so widely anticipated.

Unemployment 14.7%, expected at 16.4%
Non-farm jobs -20.5 mil, expected 21.5 mil; March revised from -701K to -870K
Private jobs -19.5 mil, expected -20.9 mil; March revised from -713K to -842K
Manufacturing jobs -1.330 mil, expected -2.25 mil; March revised to -34K from -18K
Average hourly earnings +4.7%, expected +0.3%; yr/yr earnings +7.9%, expected 3.2%. The data is skewed higher by the disproportionate loss of low-wage workers from payrolls -- rather than any wage pressures boosting employee pay.
Labor participation rate 60.2, expected 61.9%
Average work week 34.2 hours, expected 33.6 hours.
The underemployment rate, which includes discouraged workers and those working part-time who want full hours, rose to 22.8% from 8.7%.
Leisure and hospitality employers cut 7.65 million, manufacturers cut 1.33 million positions, and retailers 2.1 million. Even health care jobs fell by 1.44 million.

The Labor Department said the unadjusted unemployment rate in April would have been almost 5 percentage points higher had workers been classified as unemployed on temporary layoff, rather than employed but absent from work due to other reasons. Furloughed workers accounted for about 4 out of every 5 unemployed Americans. Unemployment at this rate is the highest since the Depression that reached 25%. The job losses have erased all of the job gains since the 2008 financial crisis.

At 9:30 am ET, the DJIA opened +273, NASDAQ +56, S&P +27. 10 yr at 9:30 am 0.66% +2 bp. FNMA 3.0 30 yr coupon at 9:30 am +2 bps from yesterday’s close and +11 bp frm 9:30 am yesterday.

Which market is wrong in the near term? Stocks or bonds? It’s the stock market, continuing to rise on the idea of a V-shaped recovery; the bond market is saying, over time, interest rates are going to increase to fund the massive stimuli being employed. The employment data notwithstanding, the recovery is being seen as a shorty term event. It won’t likely be a V; more likely, a U. Treasury debt exploding, and the Fed is running the printing presses at light speed. The 10 yr note isn’t increasing but equally isn’t declining; trading in its narrow range with strong technical resistance at 0.60% area, and mortgage rates haven’t changed in a month. Investors in equity markets are betting on the longer term, or at least that is a reasonable expectation. The indexes are over-extended when seen on a near term perspective.

A new strain of the virus, SARS-CoV-2, is mutating, resulting in a higher viral load and the evasion of existing antibodies. In plain English, this means that those who suffered from a different strain may not be immune to the new strain. We will see lots of news about the virus and treatments and vaccines for it: some positive, some negative.

Technically, the 10 yr note is locked into a tight range that keeps mortgage rates stable and unchanged recently. There is solid resistance for the 10 yr at 0.60% that has held any improvements in check since early March. Until (if) the 10 yr closes below 0.58%, there isn’t much to expect for mortgage rates.

Source: TBWS

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