August 4th, 2010 8:24 AM by Lehel S.
At 8:15 the ADP payroll people reported that private jobs in July increased by 42K, 21K from small businesses. Markets and the media made much out of it but it is nothing to shout about; jobs are not increasing, most of the ADP data is noise in our view. The stock indexes were slightly weaker prior to the data but by 9:00 the DJIA was up 15 points, the 10 yr note at 2.91% unchanged and mortgage prices also unchanged. As for the puny increase in small business jobs, we defer to the Nat'l Federation of Independent Business data that continues to show no growth in new hirings. Estimates were for ADP jobs to have increased 30K.
Prior to the ADP data the 10 yr note traded down to 2.88% at 8:00 this morning (-3 bp frm yesterday's close), once again testing its recent low rate and unable to break through. It is becoming tedious when the 10 falls to present levels and fails to have any follow-through. Traders are increasingly antsy and won't hang in much longer before taking some profits and in turn push rates back up a little. The 10 yr note and mortgage rates have strong longer term support 8 basis points higher than present levels on any selling. Prior to 10:00 ISM services sector data the 10 yr and mortgages drifted lower in price. At 9:30 the DJIA opened +5, the 10 yr unchanged and mortgage prices unchanged.
At 10:00 the July ISM services sector overall index, expected at 53 frm 53.8 in June, was better at 54.3; new orders component at 56.7 frm 54.4, employment at 50.9 frm 49.7 and prices pd at 52.7 frm 53.8. Overall a better report than forecasts; the reaction sent the 10 yr and mortgage prices down and bounced the stock market indexes higher.
Growth in Europe’s services and manufacturing industries accelerated in July, suggesting the recovery will maintain its momentum----at least that is the media take. A composite index based on a survey of euro-area purchasing managers in both industries rose to 56.7 from 56 in June, London-based Markit Economics said today. The July reading matched Markit’s earlier estimate. A reading above 50 indicates expansion, just as the US ISM data. Exports are helping drive economic growth across the euro region as rising unemployment prompts consumers to cut back spending. Any increase is welcome and generates exaggerated reactions in markets; the index was up but the margin for error is much wider than the increase, nevertheless traders (no institutional investors involved to any extent) make a lot of it.
The MBA released its Weekly Mortgage Applications Survey for the week ending July 30, 2010. The Market Composite Index increased 1.3% from one week earlier. The Refinance Index increased 1.3% from the previous week. The Purchase Index increased 1.5%. This, third straight weekly increase in the Purchase Index was driven by government purchase applications which increased 3.4% from last week, while conventional purchase applications were essentially flat. The Purchase Index increased 1.5% compared with the previous week, was up 7.1% relative to four weeks ago, but was 33.7% lower than the same week one year ago. The refinance share of mortgage activity remained flat at 78.0% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.60% from 4.69%, with points increasing to 0.93 from 0.88 (including the origination fee) for 80%loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.03% from 4.12%, with points increasing to 1.01 from 0.83 (including the origination fee) for 80%loans. This is the lowest 15-year contract rate ever recorded in the survey.
Treasury announced next week's three auctions; $34B of 3 yr notes next Tuesday, $24B of 10 yr notes next Wed and $16B of 30 yr bonds next Thursday for $74B total. The auctions will pay off $33B of notes and bonds and raise $41B in new cash to fund the expanding federal deficits.
Nothing left today for markets; trade likely to end the day relatively unchanged ahead of the "official" BLS employment data on Friday. Present estimates for non-farm jobs is a decline of 70K jobs but that includes the termination of census workers; private sector jobs are expected up 100K with the unemployment rate at 9.6%, up 0.1% from June. July jobs, if weaker, will be excused by the annual layoffs of auto workers that occurs every July; if stronger than forecasts the July employment will be seen as even better than headlines.