THE BASIS POINT

Rates Improve On Smallest ADP Jobs Growth In 7mo, Weak Europe Manufacturing

Today mortgage bonds (MBS) have regained some lost ground yesterday after payroll provider ADP reported the smallest jobs growth in 7 months. Also manufacturing reports were quite weak in Greece and across Europe.

This has pushed the 3.5% Fannie Mae MBS coupon up 13 basis points today. A modest rally that keeps this coupon (that lenders use as a benchmark to price rates) above 10- 25- and 50-day moving averages.

Result: rates are holding near record lows.

Here’s a rundown of today’s economic Fundamentals.

ADP Jobs (April 2012)
– ADP private payroll employment +119,000
– The smallest gain in 7 months
– Prior was 209,000 revised to 201,000
– ADP processes payrolls for about 23m million employees throughout the U.S.
– BLS was weak last month and this is an indication that it could be weak again.
Full report

MBA Mortgage Applications (week ended 4/27/2012)
– Purchase Index, Week/Week +2.9%
– Refinance Index, Week/Week -0.7%
– Composite Index, Week/Week +0.1%
– The housing market remains weak
– It will stay weak until more people are working

Factory Orders (March 2012)
– Factory Orders, Month/Month -1.5%
– This is the largest decline in three years

– Factory Orders have large swings from month to month and this simply another example of the supply side making up for the lack or prior demand on the consumer side. With the consumer modestly increasing spending, the supply side will pick up again reacting to increased demand.