The March ADP private jobs report this morning was weaker than thought; according to ADP private jobs increased 158K, less than the 200K generally thought. The service sector accounted for most of the jobs, +151K, manufacturing jobs +6K while construction jobs showed no gains; the rebuild frm hurricane Sandy that hit the east coast a few months ago is winding down effecting construction employment. . The Feb ADP data was revised higher, from +198K originally reported to +237K. The March increase was the smallest since last October. Prior to the 8:15 report the 10 yr note and MBS prices were lower; after the report the 10 improved a little as did MBSs.

The National Federation of Independent Business also out this morning with its survey of small businesses. "Owners reported increasing employment an average of 0.19 workers per firm, the best reading since March, 2012 and the fourth positive sequential monthly gain (last achieved early in 2011). Nine percent of the owners (down 1 point) reported adding an average of 2.3 workers per firm over the past few months. Offsetting that, 11 percent reduced employment (down 1 point) an average of 2.2 workers (seasonally adjusted), producing a seasonally adjusted gain of 0.19 workers per firm overall. The remaining 81 percent of owners made no net change in employment. Forty-seven percent of the owners hired or tried to hire in the last three months and 36 percent (77 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions." " Eighteen percent of all owners reported job openings they could not fill in the current period, down 3 points from February. This measure is highly correlated (inversely) with the unemployment rate, so it is suggestive of a minor increase in the percent of our labor force that is unemployed. Much will depend on labor force participation changes of course. Job creation plans fell 4 points to a net 0 percent planning to increase total employment, a disappointing outcome. Not seasonally adjusted, 15 percent plan to increase employment at their firm (down 2 points), and 5 percent plan reductions (down 2 points), a bit of frost on the "green shoots" that appeared to be emerging in the first quarter. Owners are still pessimistic and see little reason to hire."

At 9:30 the DJIA opened +7, NASDAQ +2, S&P unch; the 10 yr note yield at 1.85% -1 bp and 30 yr MBS prices +9 bp frm yesterday's close.

At 10:00 the March ISM services sector index was expected unchanged frm Feb at 56; another disappointment, the index fell to 54.4 the lowest index read since last November. The employment component added more concern, that index fell to 53.3 frm 57.2 in Feb. Monday the ISM manufacturing index was also weaker than thought. With the weaker ADP data this morning and the NFIB report, the employment sector appears to have slowed. The initial reaction to the 10:00 report sent the stock market lower and improved MBS prices since the 9:30 levels below, about 3 bp. The 10 yr note yield managed to break kits 100 day average to 1.83% -3 bp on the session.

Earlier this morning the weekly MBA mortgage applications were out; after a very strong week last week applications declined 4.0% overall. Purchase applications were up 1.0% as demand for government loans increased ahead of the hike in FHA premiums. Refinances fell 6.0% last week. The average 30-year loan for conforming balances ($417,500 and under) fell 3 basis points in the week to 3.76% with origination fees.

The bond and mortgage markets continue to hold positive outlooks; however the 10 yr that drives mortgages has been in a tight range for the last five days, unable so to break its 100 day average on the rate until 10:00 when the ISM services sector index was weaker than expected. The momentum oscillators are continuing to indicate a momentary overbought situation but demand is holding well. As noted yesterday, it appears investors are using the bond market as a hedge against any decline in stocks; unwilling to exit stocks and fearing a correction, buying US treasuries will partially offset losses occurring in a correction in stocks. After the ADP report this morning traders are likely to lower their forecasts for Friday's March BLS employment report. Presently the estimate is for non-farm jobs to have increased 193K, non-farm private jobs +200K with the unemployment rate unchanged at 7.7%.

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