A good start in the bond and mortgage markets this morning with slightly weaker US stock index trading. The 10 yr note is sitting right on its key resistance at 2.45% at 10:00, down 4 bps frm yesterday’s close. ADP reported better job growth than expected, +213K against estimates of 205K. Goods-producing industries, which include manufacturers and construction companies, increased headcount by 58,000 in September, according to today’s report. Construction employment rose by 20,000 and factory payrolls climbed 35,000, today’s report showed. Payrolls at service providers increased by 155,000. Companies employing 500 or more workers added 77,000 jobs. Employment at businesses with 50 to 499 employees increased 48,000 and the smallest companies boosted payrolls by 88,000.
The better bond market this morning on increased tensions in Ukraine; after four weeks of calm the cease fire deal is looking like it is unraveling. Ukraine military said pro-Russian insurgents intensified their efforts to take control of the airport in Donetsk. Ten civilians were killed and nine wounded today in Donetsk, according to reports. Also helping the bond market this morning, demonstrators in Hong Kong are increasing protests to oust the current executive administrator and calling for free elections. Hong Kong is on holiday today for two days, 100K ion the protest areas in the city, and more in other parts of the city. Today also marks the start of Golden Week, a week-long break in mainland China. The situation is a serious concern for China, its authority being challenged. Concerns are increasing that maybe China will interfere with force. So far officials have adopted a strategy to deal with the city's widespread pro-democracy protests: allow the demonstrations to continue until the protesters tire or lose support from the wider public.
Adding a little to the US rate markets; Germany today sold 10 yr bunds at less than 1.0%, the first time Germany has sold bunds under 1.0%. The economies in Europe continue to slip even with the ECB trying to curb the decline in prices that increasingly are sliding to deflation levels. Euro-area factories cut prices in September by the most in more than a year and German manufacturing shrank, underlining the mounting challenge facing policy makers before the ECB meets tomorrow. Purchasing Managers’ Indexes from Markit Economic showed manufacturing also contracted in France, Austria and Greece, with a gauge for the 18-nation region pointing to near-stagnation.
MBA reported mortgage applications declined again last week, down 0.2%. The re-finance apps declined 0.3% while purchase apps were unchanged frm the prior week. The refinance share of mortgage activity remained unchanged at 56% of total applications from the previous week. The purchase index was down 11% frm a year ago.
At 9:30 the DJIA opened -24, NASDAQ -9, S&P -3. 10 yr note 2.45% -4 bp and 30 yr MBS price +20 bps. By 9:45 the DJIA was off 121 adding additional decline on the 10 to 2.44%.
At 10:00 two more data points just out. The Sept ISM manufacturing index was expected at 58.0 frm 59.0 in August, as reported the index dropped to 56.6; new orders component dropped to 60 frm 66.7, employment component dropped to 54.6 frm 58.1. A weak report mirroring the regional Chicago report yesterday. The decline is likely due to the worsening European economy finally impacting the US. August construction spending also soft, expected to show an increase of 0.5%, as reported -0.8% and July spending revised lower, frm +1.8% to +1.2%. The 10:00 reports added more buying in treasuries, and MBSs and drove the stock indexes lower than prior to the data.
Technicals still bullish; we jumped ship yesterday and suggested locking. The issues in Ukraine, Europe and Hong Kong overnight is trumping the employment report due on Friday and the slightly better ADP jobs report this morning that typically keep markets quiet the two days prior to employment. Goes to show once again, even a professed technical trader can get it wrong occasionally, fading market action. The 10 has broken a very key technical resistance at 2.45%, at 10:15 at 2.42% and MBS prices 16 bps better than at 9:30 when lenders set prices.
PRICES @ 10:15 AM EST
10 yr note: +18/32 (56 bp) 2.42% -8 bp
5 yr note: +7/32 (22 bp) 1.71% -6 bp
2 Yr note: +2/32 (6 bp) 0.54% -5 bp
30 yr bond: +29/32 (991 bp) 3.14% -6 bp
Libor Rates: 1 mo 0.156%; 3 mo 0.235%; 6 mo 0.330%; 1 yr 0.578%
30 yr FNMA 3.5 Oct: @9:30 102.50 +20 bp (+31 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Oct: @9:30 103.19 +19 bp (+25 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Oct: @9:30 103.63 +22 bp (+35 bp frm 9:30 yesterday)
Dollar/Yen: 109.54 -0.11 yen
Dollar/Euro: $1.2612 -$0.0019
Gold: $1213.30 +$1.70
Crude Oil: $91.93 +$0.77
DJIA: 16,904.50 -138.40
NASDAQ: 4451.52 -42.88
S&P 500: 1958.57 -13.72