Current Trend Dorection: Sideways

MMG Update - Wednesday, September 5, 2007 9:49am ET
Current Trend Direction: Sideways
Risks favor: Cautiously Floating
Current Price of FNMA 6.0% Bond: $99.84, +6bp
The ADP Employment Report came in showing private sector job growth of only 38,000 jobs during August, the smallest monthly total in four years. After factoring in government Job growth, the ADP data suggests this Friday’s official Jobs Report from the Labor Department will show Non-Farm payroll growth around 65,000 – far below the current consensus estimate of 123,000 new jobs.
Even though the ADP report has been a less than stellar indicator for the official Jobs number of late, Traders are listening to the report this morning and are pushing Bonds modestly higher.
Speaking of jobs, employment consulting firm Challenger, Gray & Christmas, announced today there was an 85% jump in corporate layoffs during August from July levels. Of no surprise to us in the mortgage business, the financial sector led the way with 35,752 layoffs from a total of 79,459. Mortgage and sub-prime lending companies took the brunt of the layoffs from the financial sector.
We will lay out our Jobs Report strategy in tomorrow's update, but we have been saying for some time we think the Jobs Report will come in lower than expectations. The recent spike in Initial Claims, the weak ADP and jump in corporate layoffs gives us more confidence that Friday's Jobs Report will indeed miss expectations.
At 2pm ET, the Federal Reserve’s “Beige Book” summarizing the current state of the economy will be released. This could be a potential market mover as Traders will sift through the document looking for any hints or clues from the Fed as to their next move.
Mortgage Bonds continue to trade sideways with a pending breakout on its way. If you take a peek at yesterday's update and chart you can see how the prices are being squeezed between a Falling Resistance Line and Rising Support Line. With prices now trading exactly between resistance at the 200-day Moving Average and support at the 100-day MA, we are going to cautiously float for today and devise our strategy heading into the Jobs Report tomorrow.