Today is a big one for news and data. Started at 8:15 this morning with the Jan ADP private jobs report, expected at 168K as reported job growth exploded, up 246K. Prior to the report the bond and mortgage markets were about unchanged from yesterday, within 10 minutes MBS price down 22 bps from yesterday and the bellwether 10 yr 2.49% +3 bps from yesterday. The job growth, the best since Dec 2011, but job data from ADP and the BLS have a history of huge revisions. The breakdown; Sector Goods-producing: 46K, Natural resources/mining 6K, Construction 25K, Manufacturing 15K, Service-providing: 201K, Trade/transportation/utilities 63K, Information -6K, Financial activities 0, Professional/business services 71K, Education/health services 47K The +246K number though will have traders and investors upping their thoughts for Friday’s BLS jobs that prior to this morning were abut 170K. Today’s data follow positive employment indications in yesterday’s consumer confidence report. Volatility already today.

Early this morning (7:00 am) weekly MBA mortgage applications; applications declined 3.2% from the prior week overall, purchase apps -6.0% and re-finance apps -1.0%. Unadjusted, the purchase index increased 12% from the previous week to a level that is 2.0% higher than a year ago. Purchase applications have been surprisingly strong given the rising mortgage rate environment, posting the highest level since June in the prior week.

At 9:30 the DJIA opened +88, NASDAQ +40, S&P +8. 10 yr 2.50% +4 bps. FNMA 3.5 30 yr coupon -19 bps from yesterday’s close and -22 bps from 9:30 yesterday.

9:45 am Jan PMI manufacturing index increased to 55.0 from 54.3.

Two data points at 10:00; Jan ISM manufacturing index was better than thought at 56.0 from 54.6 in Dec; expectations were 5.2. . Dec construction spending expected +0.2% was down 0.2%. The ISM gain has added another round of selling in the MBS markets. The 9:30 prices below are now weaker by another 10 bps.

The dollar is stronger today after a few days of selling; helping the stock market, gold and crude oil and working against the rate markets.

Through the day auto companies will be reporting Jan sales; most analysts are expecting lower sales in Jan but so far Ford and Nissan have reported stronger sales than were thought, but GM weaker. Total forecasts for Jan 17.7 mil from 18.4 mil in Dec. SUVs and pick-ups strong and that is here the profits are for auto makers.

At 2:00 this afternoon the FOMC meeting will release its present policy statement. No rate increase today but March may be in play if economic data, inflation and job growth continues. The Fed must remain flexible now with the Trump economic plans and market beliefs. We don’t see any substantial economic improvements coming from Trump; his announced plans of lower taxes, more jobs and less regulations and a jolt of fiscal spending are not likely to have much impact on the economy in 2017. All of those goals will take much longer to engage than what investors currently believe. That said, we note more are coming around to the realities and the Fed is leading the way based on recent comments from Janet Yellen and Wm. Dudley (NY Fed).

Global inflation on the increase. Wage and benefit costs, the employment-cost index, rose 2.2% during 2016, the Labor Department reported yesterday. Compensation growth has stepped up from its average annual growth of 2% in 2010 through 2014. Average hourly earnings for private-sector workers, rose 2.9% in December from a year earlier. Energy is adding to the increases; consumer-price inflation was up 1.6% in December from a year earlier, a level of growth last seen in September 2014, driven higher by increased energy prices. And it isn’t just in the US; early signs of inflation are global.

PRICES @ 10:10 AM

10 yr note: -14/32 (44 bp) 2.51% +5 bp

5 yr note: -10/32 (31 bp) 1.98% +5 bp

2 Yr note: -3/32 (9 bp) 1.25% +4 bp

30 yr bond: -19/32 (59 bp) 3.10% +4 bp

Libor Rates: 1 mo 0.779%, 3 mo 1.034%; 6 mo 1.347%; 1 yr 1.713%

30 yr FNMA 3.5 Feb: @9:30 101.86 -19 bps (-22 bps from 9:30 yesterday)

15 yr FNMA 3.0: @9:30 102.43 -16 bps (-5 bps from 9:30 yesterday)

30 yr GNMA 3.5: @9:30 103.27 -25 bps (-18 bps from 9:30 yesterday)

Dollar/Yen: 113.66 +0.86 yen

Dollar/Euro: $1.0758 -$0.0040

Dollar Index: 99.89 +0.34

Gold: $1205.90 -$5.50 (dollar strength)

Crude Oil: $53.22 +$0.41 (dollar strength)

DJIA: 19,931.15 +67.06

NASDAQ: 5640.90 +26.11

S&P 500: 2283.15 +4.28

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market.  This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events.  When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up.  Tracking these securities real-time is critical.  For more information about the rate market, contact me directly.  I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Higher

Mortgage rates are moving higher so far today.  The MBS market improved by +1 bps yesterday. This was not enough to improve mortgage rates or fees.   The market experienced high volatility yesterday.

Today’s Rate Forecast: Higher

Jobs: The January ADP Private Payroll report shocked to the upside with a huge beat. It came in at 246K vs est of 165K. This report has been hit and miss as far as being a good leading indicator for Non-Farm Payrolls but has been trending closer as of late.

Housing: Weekly Mortgage Applications dropped -3.2%. Refinances fell by -1.0% and Purchase tanked by -6.0%.

Manufacturing: The January national ISM Manufacturing Index was higher than expected with a 56.0 vs est of 55.0 reading. Given that any reading above 50.0 is expansionary, this is a robust reading. The shocker is that the internal ISM Prices Paid jumped to 69 which is certainly signaling component price inflation.

Fed: Today at 2:00 EST, we will get their Interest Rate Decision and Policy Statement. The bond market is not pricing in a rate hike at this time. But we do have 4 new voting members this time around so it could be interesting. Of special note here is any mention or discussion of their balance sheet and a reduction in the pace of reinvesting their principal received on their massive holdings of MBS.

China (#2 economy): Their NBS Manufacturing PMI edged out expectations (51.3 vs est of 51.2).

Japan (#3 economy): Their Nikkei Manufacturing PMI was in line with 52.7 vs est of 52.8.

Germany (#4 economy): The Markit Manufacturing PMI was in line with 56.4 vs est of 56.5.

Great Brittan (#5 economy): Their Markit Manufacturing PMI was in line with 55.9 vs est of 55.9.

Eurozone: They held a non-monetary ECB meeting today. Also, their Markit Manufacturing PMI was in line with estimates 55.2 vs est of 55.1.

Today’s Potential Rate Volatility: High

Mortgage rates justifiably pushed a little higher this morning. The Fed’s policy statement is the main market moving event left for the day. If the Fed appears to set the stage for a rate hike then we could see a another move toward higher mortgage rates with increased volatility.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.