Morning Report - ADP signalling a weak jobs report this Friday

Vital Statistics:

	Last	Change	Percent
S&P Futures	1872.1	0.5	0.03%
Eurostoxx Index	3135.9	-0.5	-0.01%
Oil (WTI)	102.9	-0.4	-0.41%
LIBOR	0.234	-0.001	-0.40%
US Dollar Index (DXY)	80.24	0.067	0.08%
10 Year Govt Bond Yield	2.70%	0.01%
Current Coupon Ginnie Mae TBA	105.6	-0.1
Current Coupon Fannie Mae TBA	104.5	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.32

Markets are flat this morning as Ukranian Euphoria meets a putrid ADP jobs report. Bonds and MBS are flat, after bonds cratered yesterday, with the 10 year yield trading to 2.7% from 2.6%. 

The ADP jobs report came in at 139k, much lowers than the estimate of 155k. More importantly, January was revised downward form 175k to 127k. The first impulse is to blame the weather, but construction increased 14k. Manufacturing was flat, and (you guessed it) financial services fell. Friday's payroll estimate is 150k, which now seems high. N.B. - ADP has been a pretty lousy predictor of the BLS number lately, so keep that in mind. FWIW, Mark Zandi of Moody's believes weather is playing a part here, which is creating some pent-up demand for workers. He is calling for some 250k prints in the Spring. 

Last week's flight to safety bond market rally, helped increase mortgage applications by 9.4%. Both purchase and refi apps rose the same amount. The indices also benefited from an easy comparison with the holiday shortened prior week. The average 30 year fixed rate mortgage fell from 4.53% to 4.47% last week. Refis as a percent of all loans fell to 57.7%.

The FHA insurance fund will have a positive capital reserve balance at the end of 2014 and will not require a draw from the U.S. Treasury. FHA is asking for authority to collect an additional administrative fee, which will undoubtedly annoy affordable housing advocates who are pressing FHA to reduce fees. This fee may be part of the White House's 2015 budget, which is DOA.

First time homebuyers continue to struggle with tight credit and competition from professional investors. Until the first time homebuyer comes back to the market, the housing recovery (and the mortgage business itself) will be fragile. This also speaks to the completely bifurcated credit markets out there. While credit to consumers is still tight, banks are throwing money at private equity firms and institutional investors. 

It has gotten so bad that private equity firms are outbidding strategic buyers in industrial mergers, which is astounding when you consider that strategic buyers have the benefit of synergies and private equity firms do not. Historically, private equity firms were the ones who would swoop in to buy assets on the cheap; now they are winning bidding wars. 

This speaks to a theme I have been discussing for a while - the stock market is at or near record highs, and yet the broader economy is in a completely different place. Corporate America is flush with cash, and wages / hiring are flat. Ironically, the cash they have will probably be spent on productivity enhancing CAPEX, which will be good for stocks, but not necessarily good for wages. Consumption and wage growth are currently correlating at 95%, when that number has been closer to 50%. So, when you have about 2% wage growth, you get about 2% GDP growth. Which accounts for this kind of "meh" recovery we have had.