Two early reports this morning that should have dealt a blow to the bond and mortgage markets didn’t happen. At 8:15 ADP reported their count on private sector jobs, estimates were for ADP to report an increase of 180K; according the payroll people private jobs increased a huge 325K in Dec. The reaction was somewhat surprising, the 10 yr note price4 fell just 5/32, its yield increased briefly to 2.00% then backed off to unchanged, mortgage prices were unchanged. At 8:30 weekly jobless claims expected -6K, fell 15K to 372K, last week’s claims were revised higher, to 387K frm 381K. Continuing claims fell 22K to 3.595 mil; the smoothing 4 wk. average fell to 373,250 frm 376,500, the lowest since June of 2008. The ADP report didn’t get the reaction the headline might have suggested, the December number may have reflected the so-called purge effect. Workers, regardless of when they are dismissed or quit, sometimes remain on company records until December, when businesses update, or purge, their figures with ADP. They attempt to estimate the change when adjusting the data for seasonal variations, because there were fewer firings at the end of 2011 than in previous years, ADP may find it more difficult to formulate a projection. Traders took that into account in not reacting too strongly to the strong increase. Prior to the 8:15 ADP data, the Challenger jobs data somewhat countered the strong ADP data; job cuts announced by employers rose in December from a year earlier, according to Challenger, Gray & Christmas Inc. Planned firings climbed 31% to 41,785 last month from 32,004 in December 2010, which was the lowest monthly total in 10 years. Normally the Challenger data is seen as a footnote but in this case it tempers the ADP data somewhat. At 9:30 the DJIA opened -45, the 10 yr -1/32 at 1.99% unch and mortgage prices generally unchanged on 30s and +.12 bp on 15s. Stock indexes continued to fall after the open, by 9:45 mortgage prices were +4/32 (.12 bp) on the day. (see below for 10:10 prices that reflect the ISM services sector report that hit at 10:00) At 10:00 Dec ISM services sector index, expected at 53.0 frm 52.0 in Nov, was at 52.6. The sub components; new orders 53.2 frm 53.0, employment 49.4 from 48.9 and prices pd 61.2 frm 62.5. Overall it wasn’t much of support for the ADP jobs numbers earlier; the reaction sent stock indexes lower, increased the gains in MBSs and treasuries. At 9:30 when most prices were set in the mortgage market MBS 30s were +2/32, at 10:05 +5/32, a gain of .09 bp; the 10 yr yield fell tom 1.95%. Europe’s problems continue to trump much of the better data coming from the US; today’s ADP and weekly claims took a back seat to comments out of Greece. Greek Prime Minister Lucas Papademos warned his country may face economic collapse as soon as March. France sold 7.96 billion euros ($10.2B) of debt, with borrowing costs rising in its first bond auction of the year as credit companies threaten to cut the nation’s AAA rating. US interest rates still hold a slight bullish technical bias, today’s reaction to the stronger employment data has been pushed aside, it’s still all about Europe. The 10 yr note, bellwether for US long term rates briefly rose above 2.00% on the ADP and claims data but it once again found support from the news out of Europe. As long as investors and traders are fearful of debt defaults that may seriously damage Europe’s fragile banks, safety in treasuries remains the preferred strategy. That said, US interest rates have not moved much over the past two weeks; safety is still the way to go however the movement into treasuries has slowed. No reason to bail on treasuries but not much solid reason to make huge moves to away. www,PaulCantor.info
