So we conclude this holiday week with the economic fireworks of the NFP report. Yes, I know that was a little lame. With the lead-in of the robust ADP number which remember was 71k ABOVE consensus we had to have a NFP number that was greater than the +100k consensus, right?? Wrong!! The number came in at +80k which yet again confirms what I regularly say about the ADP report in relation to the NFP report which is that it means nothing but it does add market volatility to the NFP report by creating expectations.

The disconnect between the 2 reports is comical. But anyway, the markets are responding to the report as you would expect which is bonds up and stocks down. The 10yr is at 1.56% which as we anticipated yesterday is a modest rally from last night’s close. Here are the highlights of the report:

• +80k jobs which is below the +100k consensus.
• Unemployment Rate remains unchanged at 8.2%.
• The May and April revisions were pretty much a wash with a net loss of 1k.
• Private sector jobs grew @ 84k vs. a loss of 4k government jobs- This is not a selling point for the Obama Administration who have been claiming that the private sector was expected to see the boost in employment due to the many rounds of stimulus. So while the private sector did gain vs. government jobs the gains are below what one would expect after a few trillion dollars worth of stimulus.
• The gain in private payrolls is the smallest since Aug ’11- This amplifies the above point.
• The Labor Participation Rate remained unchanged @ 63.8%- Just to be clear on what this is which I find to be interesting… It is a % of working age people which is defined as 16-64 who are employed or are unemployed but looking for a job. It does not include students, homemakers or people who are under the age of 64 who are retired (I guess all those city workers who retired at 42 after putting in their excruciating 20yrs on the job). Is it me or is that number too low? Well it is because the number historically is in the high 60’s which still seems low to me.
• Average hourly earnings grew to .3% from .2%. This is the only good nugget in the report but that is a bit of a stretch. I guess there is always a ray of hope somewhere.
• The average work week grew to 34.5 from 34.4.

Bottom-line: This is not a good report but it is not as bad as the prior reports. Therefore the markets are reacting in a relatively marginal way. This report does not scream the need for another round of Fed quantitative easing in the form of QE3 but is certainly does not eliminate it either. So given the neutrality of this report I see it being quickly forgotten as the markets shift their focus back to the European crisis.

Have a nice weekend.

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.

4th of July Week… It seems like yesterday that I was writing about the Santa Clause stock rally. For those of us that did not hit a homerun by renting a summer home this week on the northeastern shores given what is expected to be amazing weather throughout this week, we are in store for some fireworks but they should not happen until the end of the week. This is because the economic calendar is full on Thursday and Friday. I do expect some uneventful trading activity today and for the early bond market close tomorrow at 2:00. However the calendar heats up with the ADP employment report on Thursday.

It is usually the Wednesday before the big Friday NFP report which is coming out this Friday but it is pushed back because of the 4th of July holiday. It will set the stage for Friday’s NFP report where the consensus as of now is +105k. Given what will be a skeleton crew at the big Wall Street firms this week, the number can cause some market disruption as the trading desks will be partially staffed. In addition this market is looking for something to dig its teeth into so for those that are at their desk and have some serious size behind them you would be surprised at how they can move markets in thin trading. I have seen this happen often so unless we get a number that is right in-line with consensus then I expect a degree of market volatility but that is the forecast for later in the week. As far as today is concerned, we are up from Friday’s close with the 10yr @ 1.59% with mortgages doing just fine as well. There is not much in front of us these next 2 days so I do expect the tight trading range that we have been accustomed to seeing over the last month. I am even a little bit surprised by the strong uptick today.

We have been seeing some nice lock activity in our new FHA Streamline program. We are happy to see this but I am even happier to see that the availability and pricing is getting even worse out there for the competing originators that are reliant on the investor community. I did mention that this was a major advantage when we rolled this out and believe me that was not just me being motivational. Having done this job for a couple of days there is a consistent pattern when programs gets discarded then ultimately discontinued by the investor community.

While I am not ready to claim that this program will be pronounced dead by the investor community, I am saying that it will be grinded down to where it is a shell of what it was intended to be. For those that are still doing it, they have significantly made the price worse and are adding overlays. One such investor is now restricting the program to single-families only. It will get worse out there but who cares?? Our program will stay the course and we have no intention of altering it at this time or in the near future. So take advantage of everyone else’s struggles out there and reach out to these borrowers who will benefit from these low interest rates.

(Image courtesy of CNN)

So the seesaw continues. Unfortunately today for the bond markets we are getting the bad end of the seesaw. Sort of like when your big brother jumps off the stupid thing when he is on the bottom and you are what feels like 100 feet in the air than go crashing down on the hard concrete (this is before parks became politically correct with all that rubber padding crap). So yes we are down a fair amount from yesterday’s close @ 1.65% on the 10yr but the good news is that it was worse earlier.

It is too early to tell where this market will go from here but I do get the impression that we will not go down much more from these levels with no additional economic numbers being released today in addition to reality setting in (read further). Stocks are poised to open up big so this is a “risk on” type of day which is opposite of the “flight-to-quality” trade into treasuries. Bottom-line to these obnoxious trading terminologies is that when investors feel good about what is going on in the world then they take more risk in the form of stock investing. When they do not they park money into the safe haven of US Treasuries. Wall Street has a knack to make things sound more complicated then things really are. It makes them feel more intelligent I guess.

So what gives today? Well before we tell you what the deal is today let’s talk about yesterday for a second. Yesterday it was all about the Supreme Court decision on the socialist health care policy of President Obama’s (oops did my political opinions slip out there for a second…sorry about that). Anyway the Supreme Court found Obamacare to be constitutional but the decision was far from unanimous. It does not get closer than this…5 to 4.  So in essence this is a tax on the American public although the Obama administration will not view it as such which is why stocks traded down yesterday and bonds traded up. Any form of tax is bad for the economy and remember the old bond market adage that I have mentioned in the past… Bad is good and good is bad.

This brings us to today and our good friends over in Europe. EU leaders agreed early this morning to use the EU’s bailout funds to recapitalize struggling banks directly. This decision allows the EU to help the banks in need directly without adding to the debt of the countries in which the banks are based. This might not seem like a big deal but it is. The reason being that when countries borrow more from the EU, their cost for future debt in the capital markets increased because they are viewed as a higher risk. Now I believe the sovereign debt markets may ultimately still consider this circumvention as an  issue with the struggling countries which is why the yield on the 10yr has not jumped to 2.0%. However, very little was expected from this latest summit so the perception of progress over there is giving this market the shot in the arm that it has been looking for. We are still very much within a tight trading range so like I said I do not think the markets are convinced of anything at this point.

Have a great weekend.

We are opening up flat to start today with the 10yr sitting firmly at 1.63%. So yes this market continues to be as exciting as the Atari Tank Game (those of you <40 might have to Google that one).  We did have a few economic releases today that I will mention but while the calendar is heavy this week on economic numbers none of them are expected to be big market movers. Of course there is always Europe to worry about but that situation has been relatively quiet since the Greek elections.

One of the economic releases today that is of interest to us is the Pending Home Sales Index. This is a forward looking indicator based on contract signings. While the index showed a decline of 5.5% in April there is something encouraging about the year over year increase of 14.4%. So it does appear based upon this number that home sales are improving. At least they do not seem to be getting worse. When times are tough you have to look at some signs like this for a ray of optimism.

In addition it is Wednesday so we got the release of the MBA Weekly Application Survey. This did show a big decline of 7.1% which was driven by the big drop in FHA refinances. Here are the highlights of the survey:

• Applications dropped 7.1%
• The Refinance Index dropped 8.0%
• The Purchase Index dropped 1.0%
• The refinance share dropped to 79% from 80%
• The average 30yr conforming rate was 3.88% w/.40pts
• The average 30yr FHA rate was 3.71% w/.46pts
• The average 15yr rate was 3.24% w/.44pts
• The average 5/1 ARM rate was 2.81% w/.41pts