|10 year government bond yield||2.02%|
|30 year fixed rate mortgage||4.00%|
Stocks are lower this morning after Friday’s strong jobs report stoked fears the Fed might not cut rates as much as the market expects. Bonds and MBS are up.
Jobs report data dump:
- Payrolls up 224,000
- Unemployment rate 3.7%
- Labor force participation rate 62.9%
- Employment-population rate 60.6%
- Average hourly earnings up 3.1%
Overall, a strong report which should in theory argue against easing rates at the upcoming July meeting. That said, the deceleration in the labor market is being taken as a sign that the Fed needs to act, especially since inflation remains stubbornly below the Fed’s 2% target. The July Fed funds futures are pricing in a 100% chance for a cut, with a 92% chance for 25 basis points, and an 8% chance of 50 basis points.
We don’t have much in the way of economic data this week, however we do have Jerome Powell’s Humphrey-Hawkins testimony on Wednesday and Thursday. Humphrey-Hawkins testimony is usually more about posturing politicians than it is about useful insights, but with the markets on edge about a potential rate cut, we could see some volatility. Expect a lot of questions about Fed independence.
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Deutsche Bank is retreating back to Europe, as it cuts 18,000 jobs and exits a lot of overseas businesses. DB has been underperforming for years, and it looks like its decades-old attempt to become a player on Wall Street and in London are over. It would be cool to see them spin off Bankers Trust, Alex Brown and Sons and Morgan Grenfell, but it doesn’t look like that will happen.