Two early reports this morning that should have dealt a blow to the bond and mortgage markets didn’t happen. At 815am ADP reported their count on private sector jobs; estimates were for ADP to report an increase of 180K and according to the payroll people, private jobs increased a huge 325K in December. The reaction was somewhat surprising as the 10-Year Note price fell just 5/32, its yield increased briefly to 2.00% then backed off to unchanged and mortgage prices were unchanged. At 830am Weekly Jobless Claims were expected to down -6K, fell 15K to 372K. Last week’s claims were revised higher, to 387K from 381K. Continuing Claims fell 22K to 3.595 million; the smoothing 4-week. average fell to 373,250 from 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. Employers attempt to estimate the change when adjusting the data for seasonal variations and 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 815am 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 930am the DJIA opened down -45, the 10-Year Note was down -1/32 at 1.99% (unchanged) and mortgageprices generally unchanged on 30-Year Fixed rates s and +.12 bp on 15-Year Fixed rates. Stock indexes continued to fall after the open and by 945am mortgage prices were up +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 1000am December ISM Services Sector Index,expected at 53.0 from 52.0 in November, was at 52.6. The sub components; New Orders at 53.2 from 53.0, Employment at 49.4 from 48.9 and Prices Paid 61.2 from 62.5. Overall it wasn’t much support for the ADP jobs numbers earlier. The reaction sent stock indexes lower, increased the gains in MBSs and Treasuries. At 930am when most prices were set in the mortgage market MBS 30-Year Fixed rates were up +2/32, at 1005am up +5/32 (+ .09 bps); the 10-Year Note yield fell to 1.95%.
Europe’s problems continue to trump much of the better data coming from the U.S. Today’s ADP and Weekly Jobless Claims took a back seat to comments out of Greece. Greek Prime Minister Lucas Papademos warned that his country may face economic collapse as soon as March 2012. 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.
U.S. interest rates still hold a slight bullish technical bias. Today’s reaction to the stronger employment data has been pushed aside, meaning it’s still all about Europe. The 10-Year Note, the bellwether for U.S. long-termrates 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, U.S. interest rates have not moved much over the past two weeks and 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.
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