Posts Tagged → FOMC
January 2012 Economic Calendar
| Date | (GMT) | Event | Actual | Cons. | Previous |
| Jan 01 | 00:00 | New Year’s Day | |||
| Jan 03 | 15:00 | Construction Spending (MoM) | 1.2% | 0.5% | -0.2% |
| Jan 03 | 15:00 | ISM Manufacturing | 53.9 | 53.2 | 52.7 |
| Jan 03 | 15:00 | ISM Prices Paid | 47.5 | 47.9 | 45.0 |
| Jan 03 | 19:00 | FOMC Minutes | |||
| Jan 04 | 12:00 | MBA Mortgage Applications | -4.1% | 0.3% | |
| Jan 04 | 15:00 | Factory Orders (MoM) | 1.8% | 2.0% | -0.2% |
| Jan 04 | 21:00 | Total Vehicle Sales | 13.60M | 13.50M | 13.63M |
| Jan 05 | 13:15 | ADP Employment Change | 165K | 206K | |
| Jan 05 | 13:30 | Continuing Jobless Claims | 3.522M | 3.601M | |
| Jan 05 | 13:30 | Initial Jobless Claims | 375K | 381K | |
| Jan 05 | 15:00 | ISM Non-Manufacturing | 53 | 52 | |
| Jan 05 | 16:00 | EIA Crude Oil Stocks change | 3.899M | ||
| Jan 06 | 13:30 | Average Hourly Earnings (MoM) | 0.2% | -0.1% | |
| Jan 06 | 13:30 | Average Hourly Earnings (YoY) | 2.1% | 1.8% | |
| Jan 06 | 13:30 | Average Weekly Hours | 34.3 | 34.3 | |
| Jan 06 | 13:30 | Nonfarm Payrolls | 150K | 120K | |
| Jan 06 | 13:30 | Unemployment Rate | 8.7% | 8.6% | |
| Jan 09 | 20:00 | Consumer Credit Change | $7.65B | ||
| Jan 10 | 15:00 | IBD/TIPP Economic Optimism (MoM) | 42.8 | ||
| Jan 10 | 15:00 | Wholesale Inventories | 1.6% | ||
| Jan 11 | 12:00 | MBA Mortgage Applications | -4.1% | ||
| Jan 12 | 13:30 | Continuing Jobless Claims | |||
| Jan 12 | 13:30 | Initial Jobless Claims | 381K | ||
| Jan 12 | 13:30 | Retail Sales (MoM) | 0.2% | ||
| Jan 12 | 13:30 | Retail Sales ex Autos (MoM) | 0.2% | ||
| Jan 12 | 15:00 | Business Inventories | 0.8% | ||
| Jan 12 | 15:30 | EIA Crude Oil Stocks change | |||
| Jan 13 | 13:30 | Trade Balance | -$43.47B | ||
| Jan 14 | 13:55 | Reuters/Michigan Consumer Sentiment Index | 69.9 | ||
| Jan 16 | 00:00 | Martin L. King’s Birthday | |||
| Jan 17 | 13:30 | NY Empire State Manufacturing Index | 9.53 | ||
| Jan 18 | 12:00 | MBA Mortgage Applications | |||
| Jan 19 | 13:30 | Continuing Jobless Claims | |||
| Jan 19 | 15:30 | EIA Crude Oil Stocks change | |||
| Jan 25 | 12:00 | MBA Mortgage Applications | |||
| Jan 25 | 19:00 | FOMC Minutes | |||
| Jan 25 | 19:15 | Fed Interest Rate Decision | 0.25% | ||
| Jan 26 | 13:30 | Continuing Jobless Claims | |||
| Jan 26 | 15:30 | EIA Crude Oil Stocks change | |||
| Jan 31 | 14:00 | S&P/Case-Shiller Home Price Indices (YoY) | -3.4% |
Happy Cinco De Mayo!
Treasuries and mortgage markets better again this morning with the stock market weaker. Crude oil, gold, silver and other commodities lower as the commodity bubble continues to burst. At 8:30 more bad news for the economy, weekly jobless claims were expected to have declined 29K they increased 43K to 474K, the biggest increase since Aug 2010. Continuing claims increased to 3.733 mil frm 3.659 mil. The 4 wk average now at 431,250; 400K is considered pivotal by many analysts, not sure why other than its an easy rounded number. A huge shock to markets with many still professing economic improvement; that view has been shaken badly in the past week and is turning markets around quickly. Although the headline hit hard there were some seasonal factors that may have exaggerated the increase; a spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge.
Q1 preliminary productivity increased 1.6% a little better than expected (+1.0%) but weaker than Q4 2010 at 2.6%. Q1 unit labor costs were up 1.0% a tad higher than thought (+0.8%), costs in Q4 were down 0.6%.
Crude oil last Friday traded at $114.00, this morning $106.00; gold last Friday $1560.00, now $1504.00, silver, copper and other commodities all reversing after months of increased prices. Markets seem to go from one bubble to the next, the commodity bubble being the latest and now bursting.
The Bank of England kept its benchmark interest rate at a record low (0.5%) as signs the recovery is losing momentum kept a majority of policy makers focused on stimulating growth during the government’s fiscal squeeze.
Jean-Claude Trichet, ECB chief left interest rates unchanged after recent increases to fight off inflation. He said the bank will monitor upside inflation risks “very closely,” suggesting it may wait until after June to raise interest rates again. “It is essential that recent price developments do not give rise to broad-based inflationary pressures,” Trichet commented after leaving rates unchanged at 1.25%. Central banks in the Philippines and Malaysia today raised interest rates, and India this week increased its borrowing costs for the ninth time since March 2010. Rates in China, may rise further after its central bank said yesterday that taming inflation is its top priority.
The bond and mortgage markets are better this morning but have already slipped back from their best levels at 9:00 after the data at 8:30. The 10 hit 3.17% at 9:00, at 9:30 3.19%; mortgage prices at 9:00 +8/32 (.25 bp), at 9:30 +4/32 (.12 bp). The technical’s are in overbought levels on the momentum oscillators and relative strength index, the potential of some consolidation exists now. At 9:30 the DJIA opened -51, as long as the indexes are weaker the bond and mortgage markets should hold gains; any recovery in equities with bond mkt overbought will likely pressure prices in mortgages. The wider perspective remains positive, however at present low yields we wonder how much lower rates can fall.
Nothing left today in terms of scheduled news; the rest of the day will be guided by the equity market trading. Tomorrow the April employment report which now is expected to show less job growth than was expected earlier this week after the ADP report yesterday and the increase in weekly claims last week and this week although today’s claims are not part of the data gathered for tomorrow’s report.
Tuesday Trivia
A better start this morning after a generally unchanged session yesterday. Markets working on the after impact (if any) frm the news Osama is dead. Yesterday the equity markets made an attempt to rally on relief but ended the session slightly weaker, the bond and mortgage markets saw no safe haven moves based on the view that Islamic terrorists would take revenge in the US with attacks. Crude oil ended lower as did gold; it appears that killing Bin Laden has had little impact. Had we gotten him seven yrs ago it may have had a different impact. After 10 yrs markets and the economy have moved on. High kudos to the Seals and intel agencies, and the President but markets are non-plused.
This morning crude oil started down $1.50 after falling $0.80 yesterday; gold yesterday down about $11.00 early this morning down another $13.00. Stock indexes early pointed to a weaker open. The 10 yr note at 9:00 was hitting open its key resistance at 3.25%.
Markets, whether interest rates, equities, oil or gold working on two issues. On one hand the economic outlook in the US is being ratcheted lower from early estimates this year, on the other concerns that terrorists will launch retaliatory attacks on the US Bin Laden had always encouraged hitting oil targets to cripple Europe and the US. So far there has been nothing coming from any terrorist cell and Bin Laden’s family is advocating no retaliatory moves.
The Johnson Redbook retail sales report released this morning showed sales were up 5.5% from this week last year. The Goldman Sachs retail sales were up just 2.8% yr/yr. Easter buying is distorting both reports with Easter much later this yr than last.
At 9:30 the DJIA opened -8, the 10 yr note +5/32 at 3.26% -2 bp and mortgage prices up 3/32 (.09 bp).
At 10:00 March factory orders, expected up 1.9%, jumped 3.0% and Feb revised from -0.1% to +0.7%; ex transportation orders up 2.6%. Mar durable goods orders were revised to +2.9% frm +2.5%. Treasuries and mortgages slipped a couple of 32nds on the news.
So far markets have not been unusually disturbed one way or the other over the Bin Laden news. Unless there is an unexpected event attention will turn back to domestic issues; Friday is employment with non-farm private jobs expected to have increased by 200K with unemployment unchanged at 8.8%. Tim Geithner said yesterday he can keep the government from shutting down until August 2nd using what treasury always has in the past, accounting moves. With more time can Congress and the Administration find common ground on cutting spending and likely increase the debt ceiling?
No noticeable moves into treasuries on safety concerns after “The Killing”; no reaction in the equity markets either. In commodities gold is falling back but so far it isn’t anything more than what could be expected after the recent spike; crude oil backing off on weaker economic forecasts and no outward fear of any additional disruptions in supply. Over $4.00 demand will decline for gasoline.
The 10 yr note, driver for mortgages is at its resistance at 3.25%, with employment on Friday rate markets may hold here or back up a little. Rates have fallen substantially over the past month, to expect that to continue employment will have to be weaker and equity markets suffer further selling.
Here Comes Monday!
Early on this morning the bond and mortgage market prices were lower, gold lower and crude oil down; the stock indexes rallying—-initial reactions to Osama Bin Laden being killed. At 7:30 the 10 yr note -9/32, crude off $2.50 (at 10:00 up on the day) and gold down $7.50, mortgages opened -5/32 (.15 bp) frm Friday’s close. Some safety trades being lifted was the rationale but we doubt there was that much safety concerns over Bin Laden ion the markets. By 9:00 the 10 yr recovered early price declines with mortgages back to unchanged.
Finally Bin Laden is dead, it took almost 10 yrs from 9/11 but in the end we got the murdering bastard. Over that time however there have been many new and dangerous cells develop assuring Islamic terrorists will continue their jihad.
At 9:30 the DJIA opened +60, 10 yr note -3/32 and mortgage prices -1/32 (.03 bp).
This is employment week with April data hitting on Friday. After a day or two the Bin Laden knee jerk affect will cease and markets will return to the economic outlook that isn’t looking all that well these days. The stock market shows no signs of backing off after making new three year highs. It has been all about stronger earnings so far, what lies ahead after most companies have scraped every little bit of fat off their balance sheets? Recent earnings reports have been better but revenues are declining. Much of the enthusiasm for equities are predicated on the Fed keeping interest rates low, low rates however are a function of a weakening economic outlook.
At 10:00 two data releases; March construction spending expected unchanged from Feb jumped 1.4% and private construction spending +2.2%; finally some noticeable improvement. The April ISM manufacturing index also better, at 60.4 frm 61.2 but a little better than 59.7 expected. The sub-components, new orders 61.7 frm 63.3, prices pd 85.5 frm 85.0 and employment at 62.7 frm 63.0 in March. Any index over 50 indicates expansion. The initial reaction pushed the price of the 10 lower and mortgage prices down .09 bp frm 9:30 levels.
This Week’s Economic Calendar:
Today;
10:00 am March construction spending as reported
April ISM manufacturing index as reported
3:00 pm April auto and truck sales (N/A)
Tuesday;
10:00 March factory orders (+1.9%)
Wednesday;
7:00 am weekly MBA mortgage applications
8:15 am ADP April private employment (+200K)
10:00 am Apr ISM services sector index (57.3 unch frm March)
Thursday;
8:30 weekly jobless claims (-29K to 400K; con’t claims 3.638 mil frm 3.641 mil)
Q1 prelim productivity (+1.0%)
Q1 unit labor costs (+0.8%)
Friday;
8:30 am April BLS employment report (non-farm payrolls +183K, private jobs +200K, unemployment unchanged at 8.8%)
3:00 pm March consumer credit (+$5.0B)
Lots of talk from Washington that the economic recovery is being held back because banks refuse to lend to businesses thus holding back job growth. U.S. banks are buying Treasuries at the fastest pace in nine months as lenders retreat to the safety of government debt with the economy expanding slower than forecast and loan demand dormant. Commercial banks bought $65B of U.S. debt in the past seven weeks, as their total holdings reached $1.68T, Federal Reserve data show. The purchases were the most since $79.1B in the period ended July 21, just before the recovery began to falter and Fed Chairman Bernanke signaled policy makers would conduct a second round of bond purchases to spur growth. Our friend Bill Dunkelberg, chief economist for the Nat’l Federation of Independent Business makes the case clear: “the real problem is loan demand (confirmed while speaking to bank organizations in half a dozen states over the past year). Loans have to be repaid, meaning that the money must be used to finance the acquisition of employees or equipment that will “pay back” the loan. Common sense. But record numbers of owners (as high as 28%) have reported that “weak sales” is their top business problem while only 4% reported “financing” as a top problem (National Federation of Independent Business monthly surveys of its 350,000 member firms). Ninety-three percent reported all their credit needs met in March, including 53 percent who said they were not even interested in a loan. No customers means no need for a loan to finance hiring, inventory purchases or expansion (only survival – not a good bank loan!). But they don’t get it in Washington D.C. And not understanding the problem produces bad policy, and there has been plenty of that. If lending is picking up, it is because customers are showing up and there is a reason to invest and hire. The reverse doesn’t work – you can’t force feed the credit to owners and have more customers suddenly show up (even interest free loans would have to be repaid!). That’s “pushing on a string”. Just ask the banks.”
The 10 yr note is closing in on 3.25% after climbing to 3.60% less than a month ago, mortgages also seeing a sizeable decline in yields over the past month. Technicals are approaching momentary overbought levels, there is an increasing potential now for some increase in rates and declining prices to consolidate the strong rally. Wider outlook has improved as the economic outlook is less bullish now than a month ago and the Fed committed to keep rates low while it refuses to consider the potential of an increase in inflation. Left alone most traders and analysts would be more concerned but since the Fed isn’t concerned why should markets?
Wednesday Market Update
A little weaker this morning in the rate markets; not really unexpected after the recent improvement in rates and ahead of an historic day with the chairman of the Fed holding a press conference for the first time ever. The FOMC meeting will conclude at 12:30 with its usual short policy statement, then at 2:15 Bernanke will hold a 45 minute press conference to answer questions. It is huge step for the Fed to open the chairman to the media, it also could be just another event that fails to meet expectations. If Bernanke doesn’t allow follow up questions then he can waltz through the press conference without breaking a sweat and continue to let markets swing in the wind.
At 9:00 this morning the 10 yr note -12/32 at 3.35% after closing at 3.31% yesterday; mortgage prices off 6/32 (.18 bb), the stock indexes continue to improve as Q1 earnings generally beat estimates. At 9:30 the DJIA opened +11 then immediately retreated to unchanged, the 10 yr at 9:30 -12/32 and mortgages -6/32 (.18 bp).
At 8:30 March durable goods orders expected up 2.0% increased 2.5%, when the volatile transportation orders are ignored durables were up in line with estimates 1.3%; no reaction to the report as everything this morning is completely dependent on the FOMC policy statement and Bernanke’s press conference.
Mortgage applications decreased 5.6% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 22. There was no adjustment made for Good Friday. The Market Composite Index, a measure of mortgage loan application volume, decreased 5.6% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 0.6% from the previous week. The seasonally adjusted Purchase Index decreased 13.6% to its lowest level since February 25, 2011, driven by a 26.6% decrease in government purchase applications. The four week moving average for the seasonally adjusted Market Index is down 2.4%. The four week moving average is down 0.8% for the seasonally adjusted Purchase Index, while this average is down 3.2% for the Refinance Index. The refinance share of mortgage activity increased to 61.6% of total applications from 58.5% the previous week. This is the highest refinance share of the month. The adjustable-rate mortgage (ARM) share of activity remained unchanged from the previous week at 6.5% of total applications. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.80% from 4.83%, with points decreasing to 1.01 from 1.06 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.03% from 4.07%, with points decreasing to 0.96 from 1.02 (including the origination fee) for 80% loans.
At 11:30 this morning Treasury will auction $35B of 5 yr notes; normally at 1:00 but with the FOMC policy statement at 12:30 Treasury moved the auction to 11:30. Yesterday the 2 yr note auction wasn’t as good as we would have liked but until the press conference is done this afternoon nothing is likely to move traders and investors. Another soft auction will be dealt with after the press conference is debated. As noted above, if no follow up questions are allowed the conference will be seen as just another sound bite.
Tuesday Trivia
US rate markets slightly better this morning but not much; the early trade in stock indexes were pointing to a better open on UBS earnings. The Fed begins its FOMC meeting today concluding tomorrow with the short policy statement at 12:30 then Bernanke’s awaited press conference at 2:15.
At 9:00 the Case/Shiller Feb home price index; on the 20 city measurement prices fell 3.3% yr/yr and on the 10 city metro prices fell 2.6% yr/yr. No reaction to the data as usual, there isn’t any improvement in the housing markets with prices continuing to fall and consumers seeing little compelling reason to buy or sell. Housing was the prime driver for the US economy since WW II until four years ago, now there seems to be little interest from Washington to directly address the issue.
At 9:30 the DJIA opened +16, the 10 yr note +4/32 and mortgage prices at 9:30 +.12 bp.
At 10:00 April consumer confidence from the Conference Board, expected at 64.4 frm 63.4 in March, was better at 65.4 frm March revision up to 63.8 frm 63.4. The present situation measurement at 39.6 frm 37.5 the highest since Nov 2008; 12 month expectations 82.6 frm 81.3 and the 1 yr inflation outlook index to 6.3 frm 6.7. Overall a better consumer outlook boosted equity indexes a little but the bond market had little initial reaction.
The only significant focus point now is on tomorrow’s FOMC statement and what Bernanke will say at his press conference in answering what we hope will be the tough questions. The general conclusion now is that the Fed will complete its QE 2 $600B treasury purchases by the end of June. What comes next is what markets are seeking; most bond market participants and stock market enthusiasts are expecting Bernanke will keep interest rates low for at least the rest of the year and possibly longer. Bernanke and some other Fed officials have repeatedly defined the economy as in “modest recovery” and still fragile. As long as the Fed (Bernanke) see it that way the Fed will do whatever is necessary to keep rates low. As long as that outlook holds stock markets will continue to improve, low rates don’t have much positive impact on consumers (maybe lower car loans), mortgage rates are low but that isn’t motivating anyone. All about driving the dollar lower and pushing investments into equity markets.
Thursday the first look at Q1 GDP is expected at 1.5% to 2.3% growth; a lot weaker than was thought just six weeks ago. Increasing numbers of analysts are currently lowering growth expectations for Q2. The Fed isn’t about to yank its support with the economic outlook not as rosy as most were expecting a short time ago. Two weeks ago markets were all a buzz fearing inflation as commodity prices increase, today focus has changed to how much more help the Fed will provide. Unlikely we will have another QE 3 but the Fed has other ways to pump money into the bond markets; it may decide to reinvest the interest and principal payments from its bond holdings in treasuries.
The bond market isn’t expecting US rates will increase when the Fed ends QE 2 at the end of June. Since last Nov the Fed has purchased about $550B of treasuries while Treasury has issued $825B of notes and bonds, when the Fed ends its QE as is generally expected traders apparently believe markets will step up and fill the short-fall.
Treasury auction $35B of 2 yr notes at 1:00 this afternoon, expectations are for good bidding.
Technically the bond and mortgage markets remain bullish; that said we will continue to stand down from buying treasuries at least until we hear from Bernanke tomorrow
Monday Update
Treasuries and mortgage markets opened better this morning in light trading ahead of this week’s Treasury auctions and the FOMC meeting on Wednesday. Equity market pre-open trade were up a little, about unchanged from fair value pointing to a flat open. Crude oil continues to increase, up $1.00 at $113.30 at 9:00 am, gold also higher again today (+$10.00 at 9:00 am).
At 9:30 the DJIA opened -17, 10 yr note +2/32 and mortgage prices +4/32 (.12 bp).
At 10:00 the only data point today, March new home sales expected up 10.7%, increased 11.1% to 300K annualized and up from 270K in Feb frm 250K originally reported. Better but not much; the median sales price $213,800.00% down 4.9% frm Mar 2010, based on sales there is a 7.3 month supply down from 8.2 months in Feb.
The major focus this week is the FOMC meeting on Wednesday. Always a key focus for the financial markets, this week even more so as for the first time in history the Fed chief will hold a 45 minute press conference after the meeting. Normally the FOMC releases a short policy statement after the meeting at 2:15 pm; this meeting will conclude with the statement at 12:30 then at 2:15 Bernanke will hold his news conference allowing reporters to ask questions. The Fed is trying to increase certainty and add stability in markets removing much of the speculation about what the Fed really means. Unlikely that his press conference will add more clarity, but at least he will try.
Treasury will auction $99B of 2′s, 5′s and 7 yr notes Tuesday through Thursday, selling the 5 yr note sandwiched between the Fed’s policy statement at 12:30 and Bernanke’s press conference at 2:15 on Wednesday. Economic data has new home sales today (see above), weekly claims on Thursday along with the first look at Q1 GDP also on Thursday. This week also has a huge number of Q1 earnings reports that will set the tone for the equity markets. So far earnings overall have generally beaten Street estimates. Technically the bond and mortgage markets are looking good as inflation worries fade and the dollar declining. We don’t expect much change in mortgage prices until Wednesday’s FOMC meeting.
This Week’s Economic Calendar:
Tuesday;
9:00 am Case/Shiller Feb home price index (-3.2% 20 city)
10:00 am April consumer confidence index (64.4 frm 63.4 in March)
1:00 pm $35b 2 yr note auction
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 AM March durable goods orders (+1.8%, ex transportation +1.2%)
12:30 pm FOMC policy statement
1:00 pm $35B 5 yr note auction
2:15 pm Bernanke press conference
Thursday;
8:30 am Q1 advance GDP report (+1.7%)
weekly jobless claims (-13K to 390K, continuing claims 3.69 mil frm 3.695 mil)
10:00 am NAR pending home sales for Mar (+1.7%)
1:00 pm $29B 7 yr note auction
Friday;
8:30 am March personal income and spending (income +0.4%, spending +0.5%)
Q1 employment cost index (+0.5%, Q4 +0.4%)
9:45 am Apr Chicago purchasing mgrs index (68.0 frm 70.6 in Mar)
9:55 am U. of Michigan consumer sentiment index (69.6 unch frm mid-month)
Much of the world markets are closed today, likely will influence trade in US markets today. The bond and mortgage markets sitting relatively unchanged so far this morning. Technically the bond and mortgage markets slightly bullish but any selling could change the technicals quickly. Debate continues about the value of treasuries and the present rates. Recent comments from Bill Gross at PIMCO that returns at present rates are not worth investing, while most dealers continue to prime the pump that bonds are a good investment. Generally we do not expect the bellwether 10 yr note to move above 4.00% this year, which is the general consensus. Gross’s criticism of present low rates, and his comment recently that PIMCO was at one point short US rate markets upset many that said it was anti-American. “I could join the dealers and say the 10-year’s not going to go to 4 percent, so what am I left with?” Gross said…….“I’m left with an under-yielding, less-than-inflation security. I have better choices. As a firm we’re not going to put up with it.”
Thrusday Trivia
A little better start today in the rate markets while the stock indexes early were pointing to another better open at 9:30. More earnings reports late yesterday coming better than expected. At 8:30 weekly jobless claims were widely expected to have declined 22K after increasing 27K the prior week; claims were down 13K to 403K, continuing claims declined to 3.695 mil frm 3.702 mil the week before. The 4 wk average on claims at 399K frm 396.7K. Claims remain elevated showing little progress recently after falling in Feb and Jan. A week ago the NFIB reported small business optimism, after improving since last Oct, fell to the level prior to last Oct; small businesses are the engine for employment, without hiring in that sector unemployment is unlikely to decline much.
Most Q1 earnings reports are hitting better than expected, driving the equity markets higher but having little if any impact in the employment sector. No job growth, no improvement in the housing sector, $4.00+ gas prices, food prices increasing—-it doesn’t matter as long as investors large and small see their net worth increase. The US approaching bankruptcy with the political outlook less than favorable that a serious budget reduction plan will emerge—-who cares? S&P lowering US debt to negative from stable has generally been pushed to the background and dismissed; the consensus among traders, investors, politicians, analysts and economists is still denial, the US will never lose its AAA credit rating. After all this is the strongest economy and nation in the world—–or is it? Republicans don’t want to increase taxes, Democrats don’t want to cut spending; if both parties don’t get close to being on the same page soon we will wake on day with interest rates much higher, the dollar (already falling hard) will not be the reserve currency of the world and the US will be a follower and not a leader. Hard to imagine, but we are closer than most think and many won’t admit outwardly.
At 9:30 the DJIA opened +16, 10 yr note +3/32 and mortgage prices +2/32 (.06 bp).
At 10:00 April Philly Fed business index, expected to have declined to 32.9 frm 43.4, as reported the index plunged to 18.5; the new orders component 18.8 frm 40.3, employment 12.3 frm 18.2 and prices pd for materials at 57.1 frm 63.8. The decline in the index took the stock market down initially and boosted prices in the rate markets. The decline in the overall index supports the growing concern that the economy isn’t as strong as had been thought as recently as two weeks ago. (any index read over zeros is considered expansion)
March leading economic indicators at 10:00 expected +0.2% jumped 0.4%.
The FHFA housing price index for Feb declined 1.6%, no surprise there.
This is the end of the week with market closed tomorrow. Next week Treasury will auction an estimated $99B of notes and the FOMC meeting on Wednesday. For the first time the Fed will release its policy statement at 12:30 then at 2:15 Fed chief will hold a news conference allowing questions and opening more details about the meeting and the intent of the generally short policy statement. Given recent events and debates and posturing over the coming budget battle the Fed will have the opportunity to say its piece in a manner unlike we haven’t had prior to this meeting. The auctions and the FOMC meeting may keep markets steady at present levels.
Thursday Update
Prior to 8:30 this morning the 10 yr note traded slightly better with stock index futures weaker. At 8:30 weekly jobless claims were expected to have increased 3K but jumped 27K back above 400K to 412K; continuing claims however declined from 3.73 mil to 3.68 mil. The 4 wk average increased 5K. Also at 8:30 March producer price index was expected up 1.0%, as reported up 0.7%, the core excluding food and energy was expected up 0.2% but increased 0.3%. Yr/yr overall PPI +5.8% while the yr/yr core +1.9%, up 0.1% frm Feb.
The 10 yr note fell below 3.50% yesterday to 3.46% breaking the near term resistance, this morning after the 8:30 data the rate fell to 3.43% and mortgage prices at 8:45 +4/32 (.12 bp). The 10 yr technicals looking better after two weeks of selling and increasing rates. The stock index futures were pushed lower on the data this morning, at 8:45 the DJIA off 47. As long as equity markets stay weak the bond and mortgage markets will do better.
Obama’s call for raising taxes by focusing on spending in the tax code was immediately rejected by top Republicans, signaling that any effort to increase the government’s take from the economy would be difficult to move through Congress. What a surprise! Obama said he wanted Congress to overhaul the tax code by lowering rates, eliminating tax breaks and generating more money than the current system does. The plan would allow tax cuts affecting high-income taxpayers to expire at the end of 2012 and would raise $1T on top of that. As noted yesterday, the budget battle is hardly beginning. That said, the Presidents speech was overall a good one, well framing the issues but the chasm between those wanting more government and less is wider than the Grand Canyon. Obama set a June deadline for a bipartisan deal to cut the federal deficit and offered a path to get there that was designed to contrast with a Republican proposal he called unfair to the elderly and overly generous to the wealthy; it won’t likely be achieved though.
Crude oil, after hitting $113.00 last Friday is slightly lower this morning and has fallen to $107.00. Oil inventory levels were higher than traders expected when data was released yesterday. The decline in the price is mostly speculators heavily leveraged being forced out, but they will be back.
At 9:30 the DJIA opened down 50 points, the 10 yr off its best levels earlier, up 3/32 at 3.45% after touching 3.43%. Mortgage prices at 9:30 +2/32 (.06 bp) also falling back from levels at 9:00.
At 1:00 this afternoon Treasury will auction $13B of 30 yr bonds; yesterday’s 10 yr auction was OK but not strong bidding.
While the bond and mortgage markets have improved in the last few days, and the 210 yr note took out its near resistance at 3.50%, the 10 has a very critical resistance at 3.40%. Breaking the 3.40% level will need a continuing decline in US equities which doesn’t appear likely although recent selling in stock markets has increased concerns and shaken the strong optimism that has captured investors.
Wednesday’s Wash
Treasuries and mortgage markets rallied yesterday on weaker equity markets and Japan raising the disaster index to 7 on the nuke problems. This morning stock indexes, as they seem to do on any declines, are better pushing rate markets higher in yield. Yesterday the 10 yr note rallied nicely taking its yield down 8 bp to 3.50% where we noted resistance would occur, mortgage rates fell about 5 bp. Yesterday gold decline and crude oil fell $4.00, this morning in early trading gold up recovering all of the decline yesterday, crude up about $1.00 at 9:00. At 9:00 the DJIA +84 in pre-market trading after declining 117 points yesterday.
At 8:30 this morning March retail sales were generally in line with forecasts; up 0.4% overall and ex auto sales +0.8%. March sales were the weakest since June 2010; Feb sales revised to +1.1% from +0.7% ex auto sales. Excluding gasoline sales in March sales were up just 0.1%, in Feb ex gas up 1.1%. The rapid increase in gasoline prices as we have noted will cause a decline in consumer spending on discretionary items.
At 9:30 the DJIA opened +64, the 10 yr -11/32 at 3.54% +4 bp and mortgage prices -.18 bp frm yesterday’s close.
At 10:00 Feb business inventories, expected +0.8%, increased 0.5%; sales were +0.2% the lowest since June 2010, the inventory to sales ratio 1.24 months unchanged from Jan.
Earlier this morning at 7:00 am the weekly MBA mortgage applications for last week. Mortgage applications decreased 6.7% from one week earlier, weekly mortgage applications survey for the week ending April 8, 2011. The Refinance Index decreased 7.7% to its lowest level since February 11, 2011. The seasonally adjusted Purchase Index decreased 4.7% from one week earlier. The Purchase Index decreased 4.1% compared with the previous week and was 11.4% lower than the same week one year ago.
The four week moving average for the seasonally adjusted Market Index is down 3.3%. The four week moving average is up 0.7% for the seasonally adjusted Purchase Index, while this average is down 5.3% for the Refinance Index. The refinance share of mortgage activity decreased to 60.3% of total applications from 61.2% the previous week. This is the lowest refinance share since May 7, 2010. The adjustable-rate mortgage (ARM) share of activity decreased to 5.9% from 6.1% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased for the fourth consecutive week to 4.98% from 4.93%, with points increasing to 0.93 from 0.69 (including the origination fee) for 80% loans. This is the highest average contract rate reported since February 18, 2011. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.17% from 4.14%, with points increasing to 1.22 from 1.09 (including the origination fee) for 80% loans. The effective rate also increased from last week.
At 1:00 this afternoon Treasury will auction $21B of 10 yr notes; yesterday’s $32B of 3 yr notes went OK, like the Three Bears—not to hot, not too cool, just right. Today’s 10 yr should be decently bid but recent Treasury borrowing over the past few months has been a mixed bag, some auctions well-bid while others not so strong.
At 1:30 the President is going to lay out his sketchy ideas for cutting the budget deficit. Likely he will not want to cut entitlements, the path for Democrats to regain power. The budget battles are going to be contentious between Republicans and Democrats and will carry on through most of the summer. Regardless of how the cuts come and whether tax revenue increases occur, the end of it all will be another serious political miss. Our politicians are all about themselves and being re-elected; we do not expect a budget that will be meaningful until we have another election when our elected officials get the temperatures of the country—-again.
The Progressive Change Campaign Committee is calling for a “donor strike” by 2008 supporters of Obama if he puts Medicare and Medicare “on the table for potential cuts.” Obama is expected to discuss those programs during his speech this afternoon on ways to reduce the federal debt. Conservative Republicans, meanwhile, are already criticizing Obama’s planned speech for proposals to eliminate tax loopholes, and end George W. Bush-era tax cuts for wealthy Americans. It is going to be a real Cluster…
And finally today; at 2:00 the Fed will release its Beige Book on the economy from the 12 Fed districts.
With the Pres speaking at 1:30 and the Fed’s Beige Book at 2:00 the financial markets will likely not move much this morning. The bond and mortgage markets are technically bearish but as we have noted we are not expecting a spike higher in rates, rates will increase through the rest of the year as long as the economic outlook continues to be positive. That said, the IMF lowered their estimates for growth in the US from 2.0% to 1.5% this year, and lowered growth rates for Europe and Asian economies. The lowered forecasts have opened the door for those that are not so optimistic. A change in the outlook would of course support the rate markets as investors exit equities, that however, at least at this time, isn’t the consensus.