US stocks opened weaker this morning after a one day improvement; no matter the chatter the stock market is very likely to head even lower. A lot of talk about a buying opportunity now from the diehard bulls but every technical indicator continues to be quite bearish; never fight the tape. In hindsight it may be a buying opportunity, but based on the outlook there will be a better opportunity at weaker levels.
The 10 yr note yield jumped a little yesterday on the minor improvement in the key stock indexes to 2.63% +5 bps; 30 yr FNMA prices sank right to the end of the day with the 3.5 FNMA coupon ending down 35 bps on the day (at 4:00 the price was down 24 bps).
At 8:15 ADP reported private job growth in Jan at +175K, the estimates from economists had moved the estimate from 170K to 185K yesterday according to a Bloomberg survey. Historically economists are the worst group alive in predicting anything; history is riddled with missed forecasts for both short term and longer expectations; the term dismal science that has defined economic study surely applies to their forecasting abilities. I have always wondered why they receive so much attention by the media and investors.
MBA released the applications data earlier this morning and clearly demonstrated the impact the cold and snowy weather is having on possible home buyers; the overall composite index increased 0.4%, purchase applications declined 4.0% while refinance apps were up 3.0%. Once again another report that brings the weather impact into the equation. Potential home buyers resist buying when they can’t even see the ground and refuse to step out in -10 degree temperatures.
So far this morning financial markets are volatile; the 10 yr starting at 2.62% now at 2.65%, MBS prices started up 15 basis points, now down 15 basis points, a little softer than at 9:30.
Friday is employment day; always a volatile day for financial markets. I normally do not float into the data as it usually presents a surprise. I suggest keeping locked on any loans that will close in the next two weeks. Of course if the employment data is weaker than expected (+185K job growth) the rate markets will improve and stocks will take another hit, that said as we always remind, the risk of floating is high into the monthly employment report.
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