Rise in Oil Overshadows Significant Job Losses

Mortgage Bonds are moving lower even after a very weak BLS Jobs Report, because the rise in oil prices is what the market is focused on right now.

Oil prices are up $20 since last Friday and $10 just this morning.

The NEC Director, Kevin Hassett, was asked about the US releasing oil from the Strategic Petroleum Reserve. He said that the US has not even thought of using it, as they believe the fears and concerns the market has right now will be resolved soon. He believes the success of the miliary and their plan to be able to help ships get through will help oil prices come right back down.

We do believe that once this situation cools and is behind us, there is a lot of reason for yields to move sharply lower. But for now, oil is dominating the market action.

BLS Jobs Report

The Bureau of Labor Statistics (BLS) released their Jobs Report for February, showing that there were 92,000 job losses, which was much weaker than the 59,000 expected.

The previous two reports for December and January were revised lower by a combined 69,000. December, originally reported at 50,000, was revised lower to -17,000, while January was revised lower by 4,000 to 126,000. There is another revision to come next month to January.

December now at -17,000 and February at -92,000 really shows just how much of an outlier January was at 126,000. We know those figures will continue to get revised lower in the future.

Within the report, Healthcare shed 28,000 jobs…but there was a strike that was responsible for 37,000 job losses. Still, this was a very weak report, with most sectors losing jobs.

For the Fed members out there saying labor is stable, here is what average job growth looks like:

3-month: 6,000 per month

6-month: -1,000 per month

12-month: 13,000 per month

Any way you look at it, the labor market has been extremely weak.

There are two surveys within the Jobs report, the Business Survey and the Household Survey. The Business Survey is where the headline job creation number comes from, and the Household Survey is where the unemployment rate comes from.

The Household Survey showed that there were 185,000 jobs lost in February, while the labor force increased by 18,000. Because of this, the unemployment rate rose from 4.3% to 4.4%, which was one tenth hotter than expected. The exact figure was 4.44%, which was a hair away from being rounded up to 4.5%. This is something to keep in mind for next months’ Jobs Report.

The average duration of unemployment hit a 4-year high at 25.7 weeks, showing that once you are let go it’s much harder to find a job because of no hiring.

News Next Week

Tuesday: ADP Weekly Employment Data, Existing Home Sales

Wednesday: Mortgage Apps, Consumer Price Index, 10-year Auction

Thursday: Housing Starts, Jobless Claims, 30-year Auction

Friday: PCE Inflation Report, GDP Q4 second reading, JOLTS

Technical Analysis

Unfortunately, Mortgage Bonds are moving lower, even after the very weak Jobs Report. We wanted to wait for this one, but oil is just dominating the market. Mortgage Bonds have broken beneath support at the 100-day Moving Average and have more room to move lower.

10-year yields continue to move higher, now breaking above the 50-day Moving Average, with room to go higher until reaching 4.20%. We are confident that yields will come back down once this is past us, but no one knows exactly how long it will go on.