Today's big news was the release of September's Employment report at 8:30 AM ET. It revealed the employment sector was much stronger than expected last month with all three of the major metrics that are most influential on bonds clearly bad news for rates. The U.S. unemployment rate slipped 0.1% to 4.2% when it was expected to be unchanged from August. New payrolls jumped 254,000, greatly exceeding forecasts of 138,000. There were also upward revisions to July and August's numbers that added 72,000 more jobs than previously announced.
The third headline to come from the report is likely doing most of the damage to bonds this morning. Average earnings rose 0.4% in September, higher than analyst's predictions of 0.3%. Furthermore, on an annual basis, earnings rose to 4.0% after they were expected to fall to 3.7%. Wage inflation is a significant contributor to broader inflation in the economy. Since bonds become less appealing to investors when inflation is stronger, we are seeing the reaction in bonds we would expect to see, leading to this morning's increase in mortgage rates.
Next week starts off fairly light with nothing of importance scheduled for Monday or Tuesday other than more Fed-member speeches that may or may not have an impact on the markets. The first releases we will be watching are set for Wednesday afternoon. Relevant economic data begins Thursday morning and includes one of the week's two major inflation readings (CPI and PPI). Even though it should be an active week for the financial and mortgage markets, the most movement is likely to come the second half. Look for details on all of next week's activities in Sunday evening's weekly preview.
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