I hope everyone had a happy and safe July 4th. Now for those of us who are working and feel like we were not invited to the big party, there are a few things going on in the financial markets over the next few days. To start we are opening up unchanged for the most part with the 10yr @ 1.62%. This is on the heels of what has been a good start to the week that was fueled by a weak ISM index which indicates slow economic growth. Now we restart the week with the ADP report which is and is not a precursor to the NFP report. It is because it gives economists an indication on whether their forecast is accurate and gives them a chance to revise but it also creates a degree of expectation in the markets for the subsequent NFP report.

However, it does not because the number tends to conflict with the actual NFP number which never really makes sense to me but that rant will be saved for another day when everyone is not so hung over. Anyway the report came in stronger than expected at +176k vs. the +105k consensus. There was also a slight revision for the May report of +3k from +133k to +136k. This is definitely strong and sets the stage up for higher expectations for tomorrow where the consensus is +100k. So if we come in below +75k I expect a decent but not earth-shattering bond rally. However if we see a strong number above 150-175k then we might see a jump into the 1.70ish% on the 10yr. But if we are in the 75k-150k range then the reaction might be as exciting as a wet firecracker. I do believe that any significant moves will be contained and even reversed in the following days as the focus shifts back to the EU which is really where this market is taking its lead. We will see @ 8:30 tomorrow…

We are also getting some rate cutting news. Relax it is nothing that is directly affecting us but it is interesting to note that the ECB (European Central Bank) and China have both lowered their benchmark interest rates. So there is effort out there to stimulate growth as it appears other central banks are doing what they can.

We also had the release of the MBA Weekly Application Survey. I am still waiting for our friends at the MBA to update their web site with the announcement (I guess they got invited to the big party as well) so our usual format will be a little different but I believe the message is the same. Here are the highlights:

• The Index is down 7.1%
• The Refinance Index is down 8.4%
• The Purchase Index is up .6%
• Gov’t Refi’s are down 21.5%
• Conventional Refi’s are down 4.7%

All-in-all this Survey does show a marked slowdown in mortgage applications. Thankfully we are bucking the trend. Keep up the good work.



The bond markets are up a little bit to start the day but we are really just getting back to where we were yesterday morning after we did get a little sell-off that started late in the morning.  The ADP report came out this morning and it was much weaker than expect @ +119k when the consensus was +170k. That does set the stage for Friday’s NFP report where I guess the markets will not be totally surprised with a weaker report.

The consensus is currently at +165k so anything south of 125k will give this market the jet fuel that it wants but +200k will put a hold on the rally at least temporarily. However, the situation is percolating in Europe so any significant development will pretty much dwarf the news from the NFP report. I saw this morning where the unemployment rate in Europe is 10.9% which is a 15-year high. Not a good situation.  In the meantime we sit comfortably at 1.92% on the 10yr.

The reason for the sell-off yesterday was the strength of the ISM index which show unexpected growth in the manufacturing sector. Remember Lesson 101 about the bond markets…Good news is bad and bad news is good (yes I know that it’s a little bit evil which is probably why 99% of the world hates us).  This also caused a push up in stocks which got the Dow to the highest point (13,279) since Dec 2007. Stocks are definitely doing well so far this year. I am far from a “stock guy” but it is obvious that once the world economy is humming on all cylinders then the Dow could very easily go well above 15k. The fact that we are at 13k with still a lot of landmines out there is impressive. Of course we will be battling inflation once that happens but that is a whole different story for another day.

Yes it is Wednesday which means it is MBA Weekly Application Survey day. While the survey was pretty much unchanged there are some interesting nuggets in the report:

• Application increased a insignificant .1%
• The Refinance Index decreased .7%
• The Purchase Index increased 3.7%
• The refinance share decreased to 72.6%
• The FHA share of purchases was 37.0%
• The investor share was 5.7%
• The 30yr conventional rate was 4.05% w/.44pts
• The 30yr FHA rate was 3.80% w/.50pts. which is the lowest rate in the history of the survey
• The 15yr rate was 3.31% w/.41pts which is the lowest rate in the history of the survey
• The 5/1 ARMs rate was 2.87% w/.35pts