Key Economic Data:
EUR / USD 1.4848 Down 0.0023
USD / JPY 90.130 Down 0.5828
GBP / USD 1.6546 Down 0.0038
OIL 77.62 Down 2.00
Gold 1,090.10 Down 0.80
FNMA 30-YR 4.5%
Previous close 101.031
Opened up 0.22BPs @ 101.25
Key Economic News:
Payrolls are the key focus, but we also have wholesale inventories and consumer credit.
8:30: Employment report for Oct…risk of disappointment. Median forecast (of 84): -175k, ranging from -250k to -105k; last 263k. For many of the same reasons as last month, the risks lie to the side of a weaker-than-expected outcome. In particular, hiring indicators remain weak (Conference Board down, Monster up but only a tad), consumers’ attitudes about job availability suggest ongoing difficulty in obtaining jobs, and the number of people receiving unemployment benefits – including those on extended programs – remains high. Moreover, the ISM employment index, which was not available last month, actually dipped a ouple of points. The news has not been all bad – initial claims fell, the ISM’s manufacturing employment index rose sharply, and the ADP report implies a better outcome if its recent error history holds up. On balance, however, we suspect that the figure will more likely print to the side of a bigger decline.
On the unemployment rate: Median forecast (of 81): 9.9%, ranging from 9.8% to 10.1%; last 9.8%. For many of the same reasons cited for payrolls – especially the rise in total continuing jobless claims, the risk lies in the direction of a larger than forecasted increase in unemployment. The labor force remains the key unkown risk, as declines in recent months have contained the rise in unemployment as officially reported. If the labor force shows any life in this report then there’s a good chance of a 10 handle.
On average hourly earnings: Median forecast (of 60): +0.1%, ranging from flat to +0.3%; last +0.1%. With the minimum wage hike now very much in the rear view mirror, the effect of high and rising unemployment should keep wage gains on the skinny side.
10:00: Wholesale inventories for Sept…less of a decline? Median forecast (of 38): -1.0%, ranging from -1.5% to -0.4%; last -1.3%. Progress toward slower liquidation remains slow.
11:30: Federal Reserve Governor Elizabeth Duke speaks at a community bankers conference at the Chicago Fed.
15:00: Consumer credit for Sept…continued retrenchment? Median forecast (of 33): -$10bn, ranging from -$21bn to -$4bn; last -$12.0bn. Consumer debt continues to fall as households try to restructure balance sheets and credit availability remains stringent.
Advice:
Nonfarm payroll employment – A mixed report, with disappointments outweighing upside surprises
Actual: -190,000 mom
Previous: -219,000 mom
Consensus: -175,000
Other Key Numbers:
Unemployment rate +0.4pts to 10.2% vs median forecast 9.9%.
Average hourly earnings +0.3% (mom, +2.4% yoy) vs median forecast +0.1%.
This morning’s employment news should help rates, but any gains may be short term. Keep an eye on the outstanding news If rates stay flat in the morning we might get a selloff in the afternoon as traders close any open positions over the weekend.
My position on MBSs stays short today. (I’m a seller of MBS)
I would lock today.
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