Bumpy road

Wednesday, October 03, 2007

ECONOMIC DATA / NEWS

Seeing as though there was no real reaction to the ADP Employment report this morning, it would seem that investors have lost some faith in its predictive capabilities.  Last month, ADP claimed that 38,000 jobs were created, excluding government jobs, which should have added another 20,000 or so.  Instead, the jobs market contracted by 4000.  Today’s report said that 58,000 private sector jobs were added last month.  Forecasts for September’s total job growth are around 100,000, so if ADP is on target, then payroll numbers should still come up short.  Although we may not want to rely too much on this measurement, there are other good reasons to believe that the jobs market rebounded thanks to schools and government offices getting back in session.

The services industry slipped some more in September.  The ISM services index lost a point from 55.8 to 54.8.  But coinciding with the assumption that there were mild improvements in employment, the employment index rose from 47.9 (below 50 represents contraction) to 52.7.

And Greenspan’s latest commentary on the economic situation is that there is a one-third to fifty percent chance that the economy will hit a recession.  He has gone back and forth this year, but his opinion has always been that there is at least a one-in-three chance that a recession will occur.  We have been pegging the likelihood at 50 percent.  A recession is not a desirable scenario, but it would lead to better interest rates, which could have some positive effects within as well as outside the mortgage industry.

TECHNICAL ANALYSIS

The gap lower at 100.44 is causing us problems for the second week in a row.  The FNMA 30-year 6.0% was able to gain another 9bp to hit this level, and prices were quickly hammered lower.  We’re now down 6bp since yesterday and 100.28.  Now that we’re back above it, the 25-day moving average could provide some support, but prices will need to close above it before we can really call it a support level.  All-in-all prices are slowly making their way higher, but it has been a bumpy road upward.

Treasuries are having more of an issue with their 25-day moving average.  The 10-year yield plopped close to 4.50%, but it has been flung back up to 4.56%.  It has been two weeks since the yield closed below the 25-day MA, and it looks as though it is going to be a tough level to get back under.

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