Mel's Blog

Bonds have slipped a bit lower after the release of the ADP Employment Report for December, which showed the private sector creating 40,000 new jobs.  This is down significantly from November’s revised number of 173,000 jobs.  After factoring in an average of 25,000 new government jobs created, the ADP Report suggests tomorrow’s Jobs Report will come in around 65,000, essentially in line with consensus estimates.  

In other news, Initial Jobless Claims during the last week of December were reported at 336,000, which was well below expectations of 349,000.  The more significant four-week moving average for claims edged slightly lower to 343,750.  The numbers are reflective of some short-term seasonal layoffs, but balanced by holiday hiring.  

Jobs Report Strategy        

The current consensus estimate is for 70,000 new jobs to be created, but perhaps of greater importance is the hourly earnings number.  Last month's blistering increase of 0.5% sent Bonds reeling, as the fear of inflation loomed.  I feel that this trend may continue.  Although the overall report tomorrow may not be very strong, Bond prices have rapidly reached dizzying heights of late, and Traders may look for any excuse to sell and take profits. 

The safe play from a risk vs reward standpoint is to lock ahead of tomorrow's number.  This is not to say that Bonds can't improve, but I am looking at the amount that could be gained, versus the amount that could be lost.  From a risk management standpoint, I feel it is prudent to protect the price gains we have seen ahead of tomorrow's volatile report, which does not give us the clear clues we have sometimes seen with regard to direction to the report.