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Anthony Hood

Equity Investment Capital

Office: 949-891-0067

Email: tony@equityinvestmentcapital.com

website: www.equityinvestmentcapital.com

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Wednesday, June 30, 2010

Prior to 8:15 this morning it appeared we would have a strong opening in the stock market and some retracement in the interest rate sector. At 8:15 the June ADP private jobs report hit and was much weaker than was expected; ADP was expected to show and increase of 60K private sector jobs, it hit at just 13K jobs, May was revised from 55K to 57K. The DJIA futures were up 60 points, at 8:30 +13 points; the 10 yr note was down 10/32 at 8:14 and at 8:30 -3/32 at 2.96% +1 BP. Mortgage prices a little soft this morning, at 8:45 -5/32. At 9:30 the DJIA opened -12, the 10 yr note at 9:30 unchanged and mortgage prices -4/32 (.12 bp). Mortgage prices may have overshot on the strong rally on Monday when the NY Fed announced it would swap 5.5 FNMA coupons for 4.0 coupons.

After the global hammering of equities yesterday triggered by the LEI from China fell to +0.3% frm +1.2% and US consumer confidence index plunged to 52.9 from 62.7, this morning reports out of Europe are supporting markets. Banks in Europe, thought to be in need of more borrowing, today it appears that Europe's banks may not be in as dire needs as was expected. The reality to take away these days is that markets are as nervous as a cat in a bit bull pen, there are multitudes of opinions coming from every angle but there is no consensus. Market volatility will be the hallmark through the rest of the summer, swinging from one event to the next as if the last news is the final word.

The ADP private jobs estimate jolted markets briefly this morning but after an initial reaction markets settled. ADP was expected to report 60K new private sector jobs, didn't happen, up just 13K. Friday's BLS official employment data was expected to see 110K jobs lost, all of it termination of census workers. Economists estimates' for private jobs in June was an optimistic increase of 112K jobs, after the ADP report there will likely be some re-thinking about how many new real jobs were generated. The unemployment rate is expected to increase to 9.8% from 9.7% in May.

Earlier this morning the MBA released its Weekly Mortgage Applications Survey for the week ending June 25, 2010. The Market Composite Index, a measure of mortgage loan application volume, increased 8.8%. The Refinance Index increased 12.6% from the previous week and is the highest Refinance Index observed in the survey since the week ending May 22, 2009. The Purchase Index decreased 3.3% from one week earlier. The four week moving average for the Market Index is up 1.5%. The four week moving average is down 0.8% for Purchase Index, while this average is up 2.1% for the Refinance Index. The refinance share of mortgage activity increased to 76.8% of total applications from 73.8% the previous week, which is the highest refinance share observed in the survey since April 2009. The adjustable-rate mortgage (ARM) share of activity decreased to 4.7% from 4.9% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.67% from 4.75%, with points decreasing to 0.96 from 1.07 (including the origination fee) for 80% loans. This is the lowest 30-year contract rate recorded in the survey since the week ending April 24, 2009. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.06% from 4.19%, with points decreasing to 0.97 from 1.00 (including the origination fee) for 80% loans. This is the lowest 15-year contract rate ever recorded in the survey. The average contract interest rate for one-year ARMs was unchanged at 7.05%, with points remaining constant at 0.27 (including the origination fee) for 80% loans.

The last of the data today; at 9:45 the June Chicago purchasing mgrs index, expected at 59.7 frm 63.8 in May, was 59.1; new orders component at 59.1 frm 62.7, employment component at 54.2 frm 49.2 and the prices pd component at 61.9 frm 64.0. The initial reaction sent the 10 yr note down a little in price and boosted the DJIA fractionally. Mortgage prices fell 0.6 bp frm levels at 9:30.

Technically; the stock market is momentarily oversold and the bond and mortgage markets are overbought. A near term situation that may lead to some retracements in all financial markets, but unlikely to change the overall longer term outlooks. It would take a huge selloff in the bond markets to reverse the present bullish outlook, the 10 yr note yield could move up 20 basis points and still keep the bullish bias. The other side of the question though is how much lower US interest rates can fall? Foreign investors that are responsible for funding the US debt may become a little more conservative with longer term rates at these and lower levels.

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