Today’s Tariff Announcement Could be a Market Mover

Stocks are lower and Mortgage Bonds are higher so far this morning, even after a stronger than expected ADP Employment Report.

The big news this afternoon will be the reciprocal tariff announcement. If they are worse than feared, we will likely see a flight to safety and Bonds will be the beneficiary. If the tariffs are less than feared, we will likely see a “risk on” trade at the expense of the Bond market. Stay tuned at 4:00pm ET…it’s the final countdown.

ADP Employment Report

The March ADP Employment Report showed that there were 155,000 jobs created during the month, which was stronger than estimates of 105,000 to 120,000, depending on which estimate you look at.  There was a small 7,000 positive revision to February, bringing that report to 84,000…but that’s still pretty anemic. 

The job gains were spread out between all business sizes and most sectors. After several months of very weak or negative job growth in small sized businesses, there was a jump of 52,000 in that category.

Looking at wages – Job stayers, or those who remained at their jobs, had their pay increase at 4.6% on an annual basis, which is a drop from 4.7% in the previous report. This is the lowest level since June 2021. 

Job changers or those finding a new job / getting poached by competition, saw an increase of 6.5%, which is down from 6.8% in the previous report.

The spread between stayers and changers matches the lowest on record, which means there is less of a premium for changing your job in regards to pay - which means less enticement and poaching from companies and ultimately less hiring needs. This coincides with why the quits rate in the JOLTS report has been dropping and at very low levels.

Bottom line – Even though the job gains were stronger than expected, wage pressures did decelerate, and Bonds appear to be focusing more on the slowing economy and tariff fears.

Atlanta Fed Q1 2025 GDP Estimate

The Atlanta Fed just yesterday released their updated Q1 GDP Estimate, which has been revised lower from -2.8% to -3.7%. When factoring in foreign trade of gold, they moved it lower from -0.5% to -1.4%. Clearly the Atlanta Fed is expecting the economy to contract in Q1, which could be a recessionary signal, if actual GDP comes out negative. And if that occurs, it will definitely get the Fed’s attention.

Mortgage Applications

The Mortgage Bankers Association (MBA) reported that mortgage rates remained around 6.75% last week and are now 0.25% lower than this time last year.

Purchase applications rose 2% last week and are up 9% from this time last year.

Refinances fell 6% and are still up 57% year over year. Refinances made up 39% of all applications, but 70% of those were cash out refinances. That means that almost one third of the total application volume was cash out refinances, so if you are not doing them, you are missing a third of the business happening today.

This report did not capture the recent drop in rates, which should lead to more activity in the next report.

Technical Analysis

Mortgage Bonds are now challenging overhead resistance at 101.67, which is a level we have not closed above since October of last year. If this level is broken and we can close above it, the next ceiling is up at 101.93.

The 10-year has been on a roll and is now testing support at 4.126%, which was our near-term target. If this level is broken, the next stop is 4%.

Of course, the tariff announcement later today will be critical and will likely drive market direction. Since it’s occurring at 4:00pm ET we will have time to react.