Wednesday Market Report

Daily Market Analysis

A good start in the bond and mortgage markets this morning with slightly weaker US stock index trading. The 10 yr note is sitting right on its key resistance at 2.45% at 10:00, down 4 bps frm yesterday’s close. ADP reported better job growth than expected, +213K against estimates of 205K. Goods-producing industries, which include manufacturers and construction companies, increased headcount by 58,000 in September, according to today’s report. Construction employment rose by 20,000 and factory payrolls climbed 35,000, today’s report showed. Payrolls at service providers increased by 155,000. Companies employing 500 or more workers added 77,000 jobs. Employment at businesses with 50 to 499 employees increased 48,000 and the smallest companies boosted payrolls by 88,000. The better bond market this morning on increased tensions in Ukraine; after four weeks of calm the cease fire deal is looking like it is unraveling. Ukraine military said pro-Russian insurgents intensified their efforts to take control of the airport in Donetsk. Ten civilians were killed and nine wounded today in Donetsk, according to reports. Also helping the bond market this morning, demonstrators in Hong Kong are increasing protests to oust the current executive administrator and calling for free elections. Hong Kong is on holiday today for two days, 100K ion the protest areas in the city, and more in other parts of the city. Today also marks the start of Golden Week, a week-long break in mainland China. The situation is a serious concern for China, its authority being challenged. Concerns are increasing that maybe China will interfere with force. So far officials have adopted a strategy to deal with the city's widespread pro-democracy protests: allow the demonstrations to continue until the protesters tire or lose support from the wider public. Technicals still bullish; we jumped ship yesterday and suggested locking. The issues in Ukraine, Europe and Hong Kong overnight is trumping the employment report due on Friday and the slightly better ADP jobs report this morning that typically keep markets quiet the two days prior to employment. Goes to show once again, even a professed technical trader can get it wrong occasionally, fading market action. The 10 has broken a very key technical resistance at 2.45%, at 10:15 at 2.42% and MBS prices 16 bps better than at 9:30 when lenders set prices. PRICES @ 10:10 AM 10 yr note: +18/32 (56 bp) 2.42% -8 bp 5 yr note: +7/32 (22 bp) 1.71% -6 bp 2 Yr note: +2/32 (6 bp) 0.54% -5 bp 30 yr bond: +29/32 (991 bp) 3.14% -6 bp Libor Rates: 1 mo 0.156%; 3 mo 0.235%; 6 mo 0.330%; 1 yr 0.578% 30 yr FNMA 3.5 Oct: @9:30 102.50 +20 bp (+31 bp frm 9:30 yesterday) 15 yr FNMA 3.0 Oct: @9:30 103.19 +19 bp (+25 bp frm 9:30 yesterday) 30 yr GNMA 3.5 Oct: @9:30 103.63 +22 bp (+35 bp frm 9:30 yesterday) Dollar/Yen: 109.54 -0.11 yen Dollar/Euro: $1.2612 -$0.0019 Gold: $1213.30 +$1.70 Crude Oil: $91.93 +$0.77 DJIA: 16,904.50 -138.40 NASDAQ: 4451.52 -42.88 S&P 500: 1958.57 -13.72