Given the huge double barrel shock to the equity bulls; the Chicago PM index and the ADP employment estimate, we suggest floating to start the day. Yesterday we locked all rate locks overnight in preparation for the employment report and the 10 yr note failing to break its resistance. Still has not done it this morning but with the stock market getting hammered we will reload and float. Keep tuned for our rate alerts through the session.

At 8:00 this morning the 10 yr note -4/32 at 3.30%, mtgs started -2/32 frm yesterday’s close. At 8:15 the Sept ADP jobs report down 254K jobs; for August ADP increased its original estimate by 20K to 277K. At 8:30 Q2 GDP final hit at -0.7%, up frm the preliminary -1.0% reported in last month’s GDP release; the reaction to the better quarter put the 10 yr -6/32 and mortgages -5/32; the DJIA index +38. At 9:00 the 10 yr -7/32, 30 yr mtgs -5/32, DJIA +35. At 9:30 the DJIA opened +14, the 10 yr -6/32 and mortgages at 9:30 -4/32. (see below for 10:00 levels).

At 9:45 the Chicago purchasing mgrs index, expected at 52.0 frm 50.0, unexpectedly fell to 46.1. The much weaker index flipped stocks over to -90 on the initial reaction for the DJIA. The new orders component fell to 46.3 frm 52.5 (any read under 50 is contraction). The 10 yr note jumped to +1/32 frm -6/32 and mortgage prices which were -4/32 at 9:30 jumped to +5/32 on the session. A major shock to the stock market running investors and traders into safety trades. A double blow for economic bulls this morning.

Earlier this morning at 7:00 the weekly MBA mortgage applications. Apps declined 2.8% from the previous week, purchase apps were down 6.2% while re-fi apps were down 0.8%. The four week moving average for the market Index is up 3.9%.  The four week moving average is down 0.6% for the purchase Index, while this average is up 6.8% for the refinance Index. The refinance share of mortgage activity increased to 65.3% of total applications from 63.8% the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.94% from 4.97%, with points decreasing to 0.94 from 1.12 (including the origination fee) for 80% loan-to-value (LTV) ratio loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.34% from 4.41%, with points decreasing to 1.01 from 1.05 (including the origination fee) for 80% LTV loans. This is the lowest 15-year fixed-rate ever recorded in the survey.

Mortgage re-finances may have peaked. Credit is tight and FICO scores over 750 to get the best rate; while we can’t be certain, most of those qualified for re-finances may have already done it. Something to keep an eye on given purchases are still very sluggish.

This morning’s ADP estimate of job losses at 254K was worse than what markets were expecting, but since it isn’t the official BLS report which occurs Friday it isn’t getting the negative reaction that the BLS report will have if it shows more jobs lost than what markets are expecting (-180K to -200K). The ADP data does not include government job changes, thus if government jobs increased by say 25K the ADP would be closer to the BLS forecasts but still more lost jobs than markets are expecting now.

No additional data through the rest of the day; all about trading off stocks through the rest of the day, and monitoring the 10 yr note ability to break technical resistance at 3.28%.

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