Market Snapshot for August 3rd, 2011

At 8:15 the ADP July non-farm private jobs were reported up 114K a little better than 86K consensus; ADP revised June to +145K frm 157K originally reported. There was little reaction to the better report; the 10 yr note traded off 2/32 prior to the release, at 8:45 -3/32. Mortgage prices at 8:45 -1/32 (.03 bp). ADP didn't get the reaction it has in the past, possibly because of the huge miss last month compared to the BLS data; +157K in June compared to +57K frm the BLS.

The deal worked out yesterday to increase the debt ceiling is still being analyzed, most believe it was nothing special in terms of cutting spending, in 2012 actual spending cuts will amount to just $60B, an amount hardly worth thinking about. Neither side of the debate should be touting success. Rating agencies are still sounding like a possible credit down grade on US debt. Not sure the impact of a down grade; most pundits painting it as Titanic problem but we don't see it that way. A down grade of US debt won't hinder investors' appetite for our notes and bonds; US rates have fallen recently primarily on weaker economic forecasts but if a credit down grade were actually expected increase borrowing costs we doubt the recent decline in rates would be as great as it has been.

At 7:00 this morning the weekly MBA mortgage applications report. Mortgage applications increased 7.1% from one week earlier, according to data from the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending July 29, 2011. The Refinance Index increased 7.8% from the previous week. The seasonally adjusted Purchase Index increased 5.1% from one week earlier. Refinance application volume increased, but even though 30-year mortgage rates are back below 4.5%, the refinance index is still almost 30% below last year's level. The four week moving average for the seasonally adjusted Market Index is up 2.8%. The refinance share of mortgage activity increased to 70.1% of total applications from 69.6% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.6% from 6.1% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.45% from 4.57%, with points decreasing to 0.78 from 1.14 (including the origination fee) for 80% loans. Both the contract rate and effective rate for 30-year fixed rate mortgages are at their lowest levels since November 5, 2010. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.52% from 3.67%, with points decreasing to 1.02 from 1.08 (including the origination fee) for 80% loans. Both the contract rate and the effective rate for 15-year fixed rate mortgages are the lowest since the survey began in 1990.

Just prior to the 10:00 key ISM services sector report the stock market was lower, the bond and mortgage markets held small price gains after opening generally unchanged.

At 10:00 the July ISM services sector index, expected at 53.0, came at 52.7. New orders component at 51.7 frm 53.6, prices at 56.6 frm 60.9 and employment at 52.5 frm 54.1. Another weak report but not by much, the reaction to the report has been muted with little change from levels just before the 10:00 release.

Also at 10:00 June factory orders, expected down 1.0%; were down 0.8%, ex transportation orders up 0.1%.