The Day Ahead: Private Payrolls Survey, Groundhog Day, QEII Coupon Lift
Treasuries detached from the stock lever yesterday and the rates range was reinforced as benchmarks benefiited from supportive bargain buying and short covering late in the session. Production MBS coupons attempted a comeback but ended up going out near the session lows.
Today’s private employment report from ADP has the potential to shape the market for the rest of the week, as all eyes are on Friday’s employment numbers.
The 10 year Treasury note is currently +6/32 at 3.416%. The 2s/10s curve is 3bps flatter at 281bps wide. The FNCL 4.5 is +2/32 at 101-30.
S&P 500 futures are 1.75 points lower at 1301.00.
Just in, the MBA Mortgage Applications index jumped 11.3% in the week ending Jan 28. Refinances led the gain, moving up 11.7%, while purchases followed suit with a 9.5% increase. Still, the purchase index is 21.4% lower than the same week one year ago.
“Applications increased this week relative to the holiday week,” said Michael Fratantoni from MBA. “Looking over the past two weeks, purchase applications are flat, and refinance applications are down about five percent.”
Key Events Today...
In Punxsutawney, Pa., world-famous forecaster Phil the Groundhog will
emerge from his burrow to look for his shadow. If he sees it he will
retreat back into the warmth, indicating more winter.
8:15 ― The ADP Private Employment Survey
is anticipated to show that 145k jobs were created in January. Anything
too far from the consensus won’t be taken too seriously after last
month’s debacle, in which ADP showed 297k new jobs ― about triple the
consensus figure. That motivated the market to raise their expectations
for the official government figures released two days later, which
turned out to be much lower than original forecasts.
“Because of
the particular way in which the ADP data are constructed, we believe it
is appropriate to ignore the December report, and assume that a more
typical gap between the ADP and BLS measures returned in January,” said
economists at Nomura Global Economics. “Specifically, before December,
the six-month average gap between the growth rates in private payrolls
measured by the ADP and BLS reports was about 70,000. Our forecast for a
160,000 increase in the official measure of private employment should
thus be consistent with an ADP result of about 90,000.”
Reuters adds....
The start of the week's employment data kicks off with ADP, which is expected to moderate to a gain of 145,000, having smashed expectations last month by jumping to 297,000.
Estimates varied widely, from a gain of 75,000 to one of 250,000. Nonetheless, the expectation for a 145,000 rise would be in line with an improving trend in employment. In the breakdown, the moderation should be broad-based. Goods may see a modestly positive outcome while services will probably lead the upside with a more mild gain. By size, the picture will be similar as small and medium continue to see the majority of the job gains while large will offer a slight positive.
10:15 ― Fed buys an estimated $1.5-2 billion in Treasury Coupons maturing between 2/15/2021 - 11/15/2027