That non-farm jobs increased 120K reflects many jobs are temporary hirings for the holidays, the reaction in the bond and mortgage markets wasn't much change from yesterday's closes although slightly lower as traders discount the decline in the unemployment rate and job growth was fractionally lower than general estimates. The stock indexes were trading better prior to 8:30 on the back of continued improvement in Europe's equity markets; there was little change in the indexes following the report.
In Europe there is some increased optimism that the debt crisis may be helped by the ECB funneling funds to the IMF then the IMF leverages the funds and provides funds to Italy and Spain taking them back from the abyss. Next Friday Europe's leaders will meet in a summit in Brussels, the meeting must end with something more than what the world has had to swallow for two years----a lot of talk but little action. Given the improvement in Europe's equity markets this week and the best week for Italy's and Spain's 2 yr note yields this week, optimism is increasing.
At 9:30 the DJIA opened 90 points better, the 10 yr note at 9:30 -9/32 at 2.12% a near term support level and mortgage prices off just 4/32 (.12 bp).
So far today the employment report has had little impact on the US financial markets. The bellwether 10 yr note has near term support at 2.12% that has been tested a few times and held, at 10:00 it traded at 2.11% after ending yesterday at 2.10% after moving to 2.14% intraday yesterday. Mortgages have been held captive in a 50 basis point price range for three weeks now while the 10 yr volatility swings its yield from 2.12% to 1.86% on every sentence out of the mouths of Europe's leaders.
We haven't changed our outlook that the US interest rate markets are unlikely to decline much from the present levels and have more potential to rise that decline. While Europe's mess will take years to resolve the markets now are believing that a plan will surface soon that will remove much of concern that Europe's banks would fail. Over the last couple of weeks the safety moves into US treasuries has ebbed substantially. We can argue that the US economy won't improve much based on the housing market and the high level of unemployment, however trading in the equity markets implies investors are increasingly more optimistic about the future. Either way one sees it the reality is that no one is sure, that has lead to huge wings in the indexes and has contributed to keeping interest rates from falling further.