Santa Fe Las Campanas Stock/ Bond Market Report

Friday’s bond market has opened in negative territory yet again, following stronger than expected employment news. The stock markets are showing early strength, but their gains appear to be more a result of news from overseas regarding the European Central Bank and the International Monetary Fund than this morning’s economic data. Early gains in stock futures before this morning’s economic data was released and little change after the data was posted indicates that stock traders were more impressed by the overseas news than the Employment report.
Still, the major stock indexes are showing sizable gains with the Dow up 113 points and the Nasdaq up 30 points. The bond market is currently down 7/32, but due to yet another rally during afternoon hours yesterday, we will likely see this morning’s mortgage rates improve by approximately .125 of a discount point if comparing to Thursday’s morning pricing.
The Labor Department gave us this morning’s major economic data with the release November’s Employment report at 8:30 AM ET. They announced that the U.S. unemployment rate fell to 8.6% last month, which was the largest monthly drop since January and the lowest rate since spring of 2009. The number of new payrolls added to the economy stood at 120,000, just below forecasts of 123,000. However, upward revisions of 20,000 in October and 52,000 in September made that portion of the report a little stronger. The third reading we follow is average hourly earnings. It was favorable for the bond market with a decline of 0.1%, meaning consumers had less money to spend than in October.
The large drop in the unemployment rate is being attributed to people leaving the workforce pool and not an increase in getting hired. That questions the validity of the 8.6%, but it is still an attractive headline number for economic optimists. The revision to October’s payrolls means we have seen four consecutive months of 100,000+ new jobs. That is not a strong enough of a pace to quickly bring down the unemployment rate, but it is a sign of moderate growth or at least stabilization in the employment sector.
Overall, today’s report should be considered slightly negative for bonds and slightly favorable for stocks. I believe this morning’s stock gains are due to overseas news and not the employment figures. The same goes for the losses in the bond market. Without the news from Europe, the major indexes likely would have been flat.
Next week is very light in terms of relevant economic reports and events that may influence mortgage rates. There is data being posted Monday with the release of October’s Factory Orders report, but it is not considered to be a significant piece of data. There really is nothing of major concern next week, so we can expect to see the stock markets play a significant role in bond trading and mortgage pricing. 
By Mark Woloshuk