Even though markets can go either way following an NFP report that comes in "pretty close" to consensus, today's Payrolls print was a bit more economically bullish than "pretty close," even if not quite as bullish as the 171k headlines vs a 125k forecast might suggest. Some of the headline shock is mitigated by the fact that average hourly earnings and the average work-week both declined, but the upward revision to the previous month (from 114k to 148k) coupled with the rare increase in the participation rate go a long way toward tipping the scales to the "economically bullish" side.
So what's up with the market reaction? Sure, the headline took a nice divot out of MBS prices, but we're back to breaking even on the day (and have traded into the green on several occasions). Stocks slumped at the open and bond market volumes have been declining rapidly since this morning. Some of the positivity that occasionally follows a paradoxical reaction to stronger data can be explained away by short-covering (after logical initial sell-off, the faster-moving market participants will buy back what they just sold-short at 8:30am, thus booking a profit on the short bet, aka "short-covering"), but we haven't seen the next logical step that normally follows a short covering bounce in that bond markets haven't begun to drift back into weaker territory. Light staffing and next week's election can both be playing a role here, as well as a technical failure of equities markets to break back into September/October's post QE3 range (given up on 10/22), but going any deeper than this risks overanalyzing a phenomenon that hasn't yet shown all of its cards.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 11:06 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
ECON: Factory Orders Slightly Higher Than Expected
- Factory Orders +4.8 pct vs +4.6 pct consensus
New orders for manufactured goods in September, up
two of the last three months, increased $22.0 billion or
4.8 percent to $475.4 billion, the U.S. Census Bureau
reported today. This followed a 5.1 percent August
decrease. Excluding transportation, new orders
increased 1.4 percent.
Shipments, up two of the last three months, increased
$4.1 billion or 0.9 percent to $481.3 billion. This
followed a 0.2 percent August decrease.
Unfilled orders, up three of the last four months,
increased $1.7 billion or 0.2 percent to $981.0 billion.
This followed a 1.7 percent August decrease. The
unfilled orders-to-shipments ratio was 6.24, down from
6.28 in August.
Inventories, up three consecutive months, increased
$3.7 billion or 0.6 percent to $615.7 billion. This was at
the highest level since the series was first published on a
NAICS basis in 1992 and followed a 0.6 percent August
increase. The inventories-to-shipments ratio was 1.28,
unchanged from August.
Bond Markets Moderately Weaker Following Payrolls Beat
The overnight session was relatively flat for bond market and equities with the 10yr trading perfectly inside yesterday afternoon's range. S&P futures were completely unchanged from 5pm to 8am. The same was true for MBS as Fannie 3.0s opened right at 5pm levels at 104-20.
There was a good amount of shock value from the NFP headline (+171k vs +125k consensus). The surprise isn't only that the headline was better-than-expected, but also that it's the second report in a row that hasn't been significantly worse-than-expected. Additionally, the revisions to the past two months were both much higher.
By all rights then, we should be in the throws of a major sell-off for bond markets yet we find Fannie 3.0s down only 1 ticks at 104-19 and 10yr yields up only 2.5 bps at 1.756. In a similarly surprising lack of movement, S&P futures are up only about 5 points.
Whether this has to do with "election uncertainty," or whether it's still simply "not good enough," remains to be seen. Whatever the case, on a week that's felt as long as this one, we certainly won't argue with the price action and hope the paradoxical resilience continues to at least hold this ground.
ECON: NFP Much Stronger Than Expected, Upward Revisions
- October NFP +171k vs +125k Consensus
- September revised up to 148k from 114k
- August Revised up to 192k from 142k
- UNR 7.9 vs 7.9 Consensus
- Labor Force Participation rate increased from 63.6 to 63.8
- Private Payrolls +184k vs +125k consensus
Total nonfarm payroll employment increased by 171,000 in October. Employment growth
has averaged 157,000 per month thus far in 2012, about the same as the average monthly
gain of 153,000 in 2011. In October, employment rose in professional and business
services, health care, and retail trade.
The change in total nonfarm payroll employment for August was revised from +142,000 to
+192,000, and the change for September was revised from +114,000 to +148,000.
Both the unemployment rate (7.9 percent) and the number of unemployed persons (12.3
million) were essentially unchanged in October, following declines in September.
Live Chat Featured Comments
Ross Miller : "Also, I'm sure that FEMA is going to start offering SBA disaster assistance loans. Please know that the government with cross collateralize like crazy. On businesss loans they will collateralize any owners residential property making refinances in the future difficult. SBA will always go into last lien positions and will always subordinate but after receiving one if the borrower wants to do a cashout they will have to payoff 1/2 of the SBA loan before that get any money."
Ross Miller : "*through the servicers"
Ross Miller : "For those on the northeast, Fannie and Freddie are going to allow for Forbearances but the services. Please be clear with your customers that this can create issues with credti reports in the future. The servicers made a lot of mistakes on this post Katrina and we spent a lot of time fixing credit reports. If your borrowers can make their payments on time they should. "
Matthew Graham : "S&P futures are only 5 pts higher from 5pm as well. An all-around muted response to some ostensibly significant numbers"
MMNJ : "MBS continuing it's unprecedented resilience in the face of purported prosperity on the labor front"
Matthew Graham : "no, markets don't care much about the UNR. That's more of an evening news number. Not a black and white issue, but I don't think that's behind the resilience."
Victor Burek : "earnnings and hours worked were both lower..think that is having a bigger impact"
Matt Morrissey : "is the 7.9 offsetting the strong nfp report?"
Paul L. Martin : "Well there are lies, dam lies, and statistics"
Matthew Graham : "RTRS - U.S. OCT FACTORY JOBS +13,000 (CONS. -4,000) VS SEPT -14,000 (PREV -16,000) "
Matthew Graham : "RTRS- U.S. LABOR FORCE PARTICIPATION RATE 63.8 PCT IN OCT VS 63.6 PCT IN SEPT "
Christopher Stevens : "those are some hefty revisions"
Matthew Graham : "RTRS - U.S. OCT JOBLESS RATE 7.9 PCT (CONSENSUS 7.9 PCT) VS SEPT 7.8 PCT (PREV 7.8 PCT) "
Victor Burek : "earnings and hours declined"
Matthew Graham : "RTRS- US OCT PRIVATE SECTOR JOBS +184,000 (CONS +125,000), SEPT +128,000 (PREV +104,000) "
Matthew Graham : "RTRS- U.S. OCT NONFARM PAYROLLS +171,000 (CONSENSUS +125,000) VS SEPT+148,000 (PREV +114,000), AUG +192,000 (PREV +142,000) "