Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com




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Wednesday, March 30, 2011


Mortgage markets starting better this morning after price declines again yesterday; the 10 yr note at 9:00 was up slightly (2/32) while mtg prices were +4/32 (.12 bp). At 8:15 the March ADP non-farm private jobs report came in at +201K; small businesses +102K, medium businesses +82K and large businesses +17K. ADP reported the service sector jobs increased 164K the 15th consecutive increase in service producing sector; goods producing up 37K the 5th consecutive increase and manufacturing increased 37K the 6th consecutive increase. According to ADP the US private sector has averaged 175K jobs a month for the past six months. Projections of the 34 economists polled by Bloomberg ranged from gains of 171,000 to 295,000.

According to Chicago-based Challenger, Gray & Christmas Inc., another employment data point this morning, employers announced fewer job cuts in March than the same month last year, even as government payroll cutbacks climbed to the highest level in a year. Public employees accounted for almost half of all job cuts as states continue to cut fat with most state budgets in some kind of deficit.

Earlier this morning at 7:00 am the MBA released its weekly mortgage applications; they decreased 7.5% from one week earlier. The Refinance Index decreased 10.1% from the previous week. The seasonally adjusted Purchase Index decreased 1.7% from one week earlier. The unadjusted Purchase Index was 21.9% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 2.0%. The four week moving average is up 2.1% for the seasonally adjusted Purchase Index, while this average is up 2.0% for the Refinance Index. The refinance share of mortgage activity decreased to 64.3% of total applications from 66.4% the previous week. This is the second lowest refinance share reported since May 2010. The adjustable-rate mortgage (ARM) share of activity decreased to 5.7% from 5.9% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.92% from 4.80%, with points decreasing to 0.83 from 0.96 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.16% from 4.02%, with points increasing to 0.99 from 0.90 (including the origination fee) for 80% loans.

Later today, at 1:00 pm Treasury will auction $29B of 7 yr notes. So far the 2 yr and 5 yr auctions were marginal at best. Today's auction closer to the long end of the curve will be closely watched by traders, another soft auction will likely add conviction that interest rates are on the way higher.

At 9:30 the DJIA opened +46, the 10 yr note traded +1/32, mortgage prices +4/32 (.12 bp) frm yesterday's close. Although the ADP report and the open in the equity markets would pressure to rate markets, interest rate markets have been in a slow free-fall for the past eight sessions and are now momentarily technically oversold. The potential for some improvement is high but in the wider perspective any rebound in rates will be seen as a selling opportunity by traders. The ECB about to increase rates along with many of the economies of the world, inflation concerns increasing albeit slowly, and as the calendar ticks off we get closer to the end of all of the Fed's easing moves with QE 2 ending in June. Markets will not wait to the end and will have to consider how markets will absorb the shortfall when the Fed stops buying treasuries.

Should be quiet the rest of the morning until the 7 yr note auction is completed at 1:00. Oversold momentum oscillators likely to keep traders still until another shoe drops (i.e., a poor 7 yr auction or stronger economic data when the official employment report for March hits Friday morning). Although some rebound can't be ignored, the rate markets will not likely loose their bearish outlook.