Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Once again this morning the ADP private jobs data was stronger than what had been expected. ADP said private jobs increased 163K, estimates were for 125K. Last month the BLS reported private jobs at +84K; last month’s ADP data was revised to +172K. The gap between the two reports (ADP and BLS) continues to confuse the job gains. Since April 2010, ADP’s initial estimate has either overstated or understated the Labor Department’s initial reading on private payrolls by 72,000 on average. Goods-producing industries, which include manufacturers and construction companies, increased workers by 15,000, today’s figures showed. Employment in construction rose by 5,000, while factories added 6,000 jobs. Service providers increased payrolls by 148,000 workers. Companies employing more than 499 workers took on 23,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 67,000 positions and small companies increased payrolls by 73,000, ADP said. This afternoon at 2:15 the FOMC policy statement will be released at the conclusion of the meeting. General belief now is that the Fed will not announce another easing move that is expected. The consensus now is that the Fed will wait until the Sept meeting to decide about buying more treasuries and MBSs to keep rates low. There will be two more employment reports between now and the Sept meeting, along with more monthly economic measurements. The Fed is at a point where the law of diminishing returns is occurring. The physics law says that at some point anymore efforts to improve something begins to lessen, eventually having no impact at all. That is where we see the Fed now; any easing won’t create more jobs, get small businesses to spend or consumers to loosen their wallets. Monthly retail sales have been declining for 3 months now as consumers have increased savings over 4.0%. Lower interest rates have little effect now. What happens tomorrow at the ECB monthly meeting is more critical to markets----stocks and US bonds. Last week ECB President Draghi surprised markets with is very strong statement that the ECB will not let the euro currency fall and keep the makeup intact. Saying the ECB will do whatever it takes, adding that the bank has ample ammo to do it. He wants to buy sovereign debt from the struggling economies and lower the borrowing requirements at the ECB. Germany on the other hand is against outright bond buying by the ECB saying it is against the EU charter. In many past episodes there have been moments where the world thought there was light at the end of the tunnel, running stocks higher and taking some safety trades out of the bond markets. What comes from the meeting tomorrow, based on the last three year history of the European debt crisis there will likely be disappointment on what comes out of the meeting. At 9:30 the DJIA opened 58, NASDAQ +11, S&P +4. The 10 yr note at 1.51%, MBS prices -16 bp on 30s and -7 bp on 15s. The increase over estimates on ADP was putting pressure on the bond and mortgage markets ahead of the July ISM data at 10:00. The July national ISM manufacturing index at 10:00, forecasts were for the index at 49.9 frm 49.7 in June. The index was at 49.8, in line; t is the second month in a row under 50 (under 50 is considered contraction) but still at a neutral area. The new orders component fell to 48. Also at 10:00 June construction spending, expected up 0.5%, spending up 0.4%. Last month’s spending was revised to +1.6% frm +0.9% originally reported. Construction looking better. The bond and mortgage markets still hanging on with slightly positive momentum oscillators but the momentum in the bond and mortgage markets is slowing. The 10 yr note is trading this morning at its 20 day average which has in the past rendered nice support. That said, we are a little more concerned now that rates might back up a little. Tomorrow’s ECB meeting outcome will likely be the trigger for more rally or some selling. \