(Image courtesy of Chip Somodevilla/Chicago Tribune)
The markets are opening down as the ADP report came out a bit higher than expected. It showed a 163k increase when the consensus was 120k. For those that read this regularly know that I downplay the ADP number because it tends to have little in common with the succeeding NFP report.
However, what is does do is create expectations and now the expectation for Friday’s number is that it is higher than the 100k consensus. So even if the actual number is on the nose @ 100k the markets would probably view this as a weak number which would result in a negative reaction in stocks and positive one for bonds. Also what this higher than expected ADP number does is create a sense that the Fed could wait to roll out QE3. I will say that is a bit of a stretch because in a few hours we will find out soon enough what the Fed thinks with the release of the FOMC minutes @ 2:15. However, this is what traders grab on to in order to give themselves a chance to be one step ahead and make a few bucks.
Something worth mentioning happened yesterday which was the official release by Edward DeMarco who is the Acting Director of the Federal Housing Finance Agency(FHFA) on Obama’s proposed Home Affordable Modification Program Principal Reduction Alternative (HAMP PRA). You may recall from some older Market Updates when we reported on the Obama Administration putting pressure on DeMarco to approve some aggressive (some may say Socialist) measures to have the FHFA allow FNMA/FHLMC to implement Obama’s HAMP PRA.
The HAMP PRA plan by Obama would give FNMA/FHLMC the ability to give borrowers a principal pay-down which in the opinion of the Obama administration would help stem foreclosures. DeMarco strongly disagreed with this and in essence termed the program as a moral hazard. However he agreed to do a complete analysis on the cost/rewards of this politically driven program funded by the taxpayers. So his report came out yesterday and said, “ Given our multiple responsibilities to conserve the assets of Fannie Mae and Freddie Mac, maximize assistance to homeowners to avoid foreclosures, and minimize the expense of such assistance to taxpayers, FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.”
This was not met with much acceptance from the Obama Administration as Treasury Secretary Geithner called for DeMarco to reconsider. Some interesting political theater that does affect our business. Also I am impressed with DeMarco for having the grapefruits to stick up for what he strongly believes in even if it does eventually cost him his job. If we had more people like him in Washington then maybe this country would get its financial house in order.
Finally the Weekly MBA Application Survey came out this morning. Here are the highlights:
- Mortgage applications increased .2%
- The Refinance Index increased .8%
- The Purchase Index decreased 2.0%
- The refinance share was 81% which is the highest since 1/20/12
- The average 30yr conventional rate was 3.75% w/.51pts
- The average 30yr FHA was 3.52% w/.55pts
- The average 15yr was 3.09% w/.49pts
- The average 5/1 ARM was 2.73% w/.41pts