Posts Tagged → Inflation
Monday Minutia
This Week: economic releases beginning Monday and through Thursday will set the tone for financial markets. Recently there has been a renewed view the US economy is better than thought just a few weeks ago, the DJIA has now recovered all losses for the year. Interest rate markets are taking the hit on better outlooks and the belief that Europe’s debt mess will be contained—-hope is what we live with these days.
The first of the data out at 8:30 this morning, Oct NY Empire State manufacturing index, expected at -4.0 frm -8.82, as reported -8.48 indicating continued contraction. No initial reaction to the weak data.
Europe will continue to draw attention this week, it may not be obvious but under the radar and other driving events Europe is still unsettled. Last week markets were enthused on comments that the EU has com up with a plan that includes banks taking huge hits. Over the weekend the has been some push-back from Europe’s banks. Opposition from banks may hamper efforts by German Chancellor Angela Merkel and French President Nicolas Sarkozy to present a breakthrough at an Oct. 23 summit of euro leaders in combating the crisis, which has driven Greece toward default, roiled global markets and dented confidence in the survival of the 17- nation currency. In the end the situation is still unresolved and is unlikely to be resolved by Oct 23, the so-called date to have it all worked out. The significance is that as long as there is no actual resolution the US interest rate markets and the US equity markets will continue with their volatility.
Treasuries and MBS markets opened flat early this morning but got some support at 9:00 as stock indexes softened a little. Helping the bond market some this morning, the Oct NY Empire State manufacturing index expected -4.4 frm -8.82% in Sept was -8.48; the sub components were a little better but still very weak. At 9:15 Sept industrial production reported +0.2% right on the forecasts. Sept capacity utilization also in line, at 77.4% frm 77.3% in August. No initial reaction to the reports.
Europe will continue to draw attention this week, it may not be obvious but under the radar and other driving events Europe is still unsettled. Last week markets were enthused on comments that the EU has com up with a plan that includes banks taking huge hits. Over the weekend the has been some push-back from Europe’s banks. Opposition from banks may hamper efforts by German Chancellor Angela Merkel and French President Nicolas Sarkozy to present a breakthrough at an Oct. 23 summit of euro leaders in combating the crisis, which has driven Greece toward default, roiled global markets and dented confidence in the survival of the 17- nation currency. In the end the situation is still unresolved and is unlikely to be resolved by Oct 23, the so-called date to have it all worked out. The significance is that as long as there is no actual resolution the US interest rate markets and the US equity markets will continue with their volatility.
At 9:30 the DJIA opened -50, the 10 yr +9/32 at 2.22% -3 bps; mortgage prices at 9:30 +4/32 (.12 bp).
This Week’s Economic Calendar:
Today;
8:30 am NY Empire State index -8.48 frm -8.82
9:15 am Sept Capacity Utilization 77.4% frm 77.3%
Sept industrial production +0.2%
Tuesday;
8:30 am Sept PPI (+0.2%, ex food and energy +0.1%)
10:00 am Oct NAHB housing mkt index (14, unchanged from Sept)
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Sept CPI (+0.3%, ex food and energy +0.2%)
Sept housing starts and permits( starts +4.0%, permits -1.5%)
2:00 pm Fed’s Beige Book
Thursday;
8:30 am weekly jobless claims (unch at 404K)
10:00 am Sept existing home sales (-1.8%)
Oct Philly Feed business index (-9.6 frm -17.5)
Sept leading economic indicators (+0.3%)
Treasury 10-year notes better, pushing yields down from the highest level in seven weeks, as concern Europe may take longer to contain sovereign debt turmoil boosted demand for the safest assets. We still believe the 10 yr note yield won’t increase past 2.30%; the high in the recent increase has been 2.27%. With continued concerns over how, or if, Europe can solve its debt issues US markets will continue to trade in swings on each comment out of the region. Germany said European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit.
Although there is no way Europe can meet the Oct 23rd target that had been thought, markets still believe some kind of resolution, foreign investors in US bond markets are selling on that belief. The Federal Reserve reported its holdings of U.S. government debt on behalf of central bankers and institutional investors outside America has plunged $76.5B in the last seven weeks, the most since August 2007. At the same time, bond mutual funds are adding Treasuries, banks have increased their holdings 45% in the past five years and the Fed has added $656B to its balance sheet this year.
Technically the 10 yr note and MBSs are bearish at the moment.
It’s Friday the 13th!
Prior to 8:30 the interest rate markets were unchanged, at 8:30 April consumer price index was up 0.4% in line with forecasts, excluding food and energy +0.2% also about n line. Yr/yr overall CPI +3.2% up frm +2.7% in March, excluding food and energy +1.3% up frm +1.2% in March. The yr/yr CPI the highest in 3.5 years, mostly on oil and gasoline price increases. Inflation at the wholesale and intermediate levels is climbing but so far price increases have not yet filtered down to consumers, although the core did increase from March to April.
Treasury auctions are over now until a week after next, the 10 yr auction went well while the 30 yr bond yesterday didn’t see as much demand. Treasuries and mortgages lost ground yesterday; this mooring treasuries and mortgages are better on the CPI. Yesterday’s increase in the producer price index rattled markets a little, today the CPI was tame and added some buying of treasuries and leading to increases in mortgage prices.
In Europe the economy is better than analysts were expecting; GDP in the 17 euro area rose 0.8% from the fourth quarter, powered by Germany and France. The German economy jumped 1.5% from the previous three months and French GDP grew 1.0%, exceeding economists’ median estimates of 0.9% and 0.6%, respectively. The better than expected growth has not filtered into our markets with US stock indexes opening weaker this morning.
At 9:30 the DJIA opened +13, the 10 yr note +7/32 at 3.20% -3 bp and mortgage prices +5/32 (.15 bp).
The final data point this week, at 9:55 the U. of Michigan consumer sentiment index for mid-May, expected at 69.5 frm 69.8, was higher at 72.4, the 12 month outlook 83 frm 74, current conditions 80.2 frm 82.5 Generally better than expected but no reaction to it in either equity indexes or the bond and mortgage markets.
The commodity markets continue to trade in volatile moves; today early crude oil ran back above $100.00 then backed off. Gold early unchanged. Political turmoil in the mid-East isn’t cooling with increased fighting in Libya and Yemen will likely keep oil frm sliding with the weekend ahead.
Recently Bill Gross co-CEO of PIMCO was taken to the wood shed by media and traders at competing investment funds for saying PIMCO was shorting US treasuries; anti-American. Although PIMCO probably haven;t been short bonds recently, Gross took heat to his reputation. This morning Mohammad El Arian c0 CEO at PIMCO said the firm cantinas to believe there are better opportunities outside the US in other bond markets. That PIMCO is bearish on the US bond market while most others are slightly optimistic rates will continue to fall illustrates the divide that exists in the market now.
The 10 yr treasury still has momentum, the overbought technical condition we had been watching has now been alleviated, the note is no longer overbought based on our models, nevertheless the 10 is stuck at these levels, unable to break resistance at 3.14% set early in March. Mortgage rates also in the same situation and will not move much lower n rate unless the 10 yr note cracks and holds below 3.14% (currently at 3.19%). All that said, on the other perspective traders and investors are still holding firm with little momentary interest to abandon long bond market positions. No selling, and no buying keeping interest rates stable over the past week.
Data and Auction to Influence Rates
Three data points at 8:30 this morning; weekly jobless claims were expected to have declined 50K last week, as reported claims were down 44K after increasing 43K the previous week. Continuing claims 3.756 mil frm 3.751; the 4 wk average of claims 436K from 432K the previous week. April retail sales were reported up 0.5% overall, when auto ales are taken out sales were up 0.6%; about in line with estimates. April producer price index hit a little hot, up 0.8% overall, excluding food and energy up 0.3%; both were a little higher than forecasts. Yr/yr overall PPI +6.8%, ex food and energy +2.1%.
The 8:30 data taken well by all markets initially; the bond and mortgage markets were fractionally better prior to 8:30 and showed no movement on the data but we are somewhat concerned about how the bond market will take the increases in the PPI data. The increase, although minor, won’t likely sit well for rate markets. With interest rates at these low levels any sniff that inflation may increase, whether real or imagined, will hinder bond markets.
The stock market supporting rate markets this morning with the indexes trading weaker prior to the 9:30 open. At 9:00 the DJIA -42, the 10 yr note about unchanged from yesterday’s auction when a new 10 yr note was issued. Mortgage prices at 9:00 +.03 bp. At 9:30 the DJIA opened -23, the 10 yr note rate at 3.19% up frm 3.16% on the old 10 yr yesterday but -2 bp frm the auction yesterday; mortgage prices -.06 bp.
At 10:00 March business inventories expected up 0.9%, were up 1.0%, sales up 2.2%, Feb revised from +0.2% to +0.5%. The inventory to sales ratio a record low at 1.23 months from 1.24 months in Feb. No reaction.
Crude oil and gold, along with most other commodities continue to fall as the commodity trade that pushed most every commodity higher and to excess is ending with huge declines. Crude oil on Monday climbed back up to $103.50, at 9:00 this morning trading at $97.00. Yesterday gasoline futures came under heavy selling pressure pushing prices to limit down in the futures markets.
The Senate Banking Committee is starting hearings today on the Dodd Frank bill that in our view was Congress running amok. Bernanke along with FDIC Chair Sheila Bair, SEC Chair Mary Schapiro, CFTC Chair Gary Gensler, and Deputy Treasury Secretary Neal Wolin. There had to be some legislation to rein in the large banks that clearly demonstrated they have little self control and really demonstrated in the sub prime catastrophe that management of these huge banks didn’t have a clue about what was happening in their banks. Most of the other stuff in the Dodd Frank bill was mostly unnecessary in its detail and complexity. Bernanke is expected to support the bill, many Republicans want the bill tossed into the trash.
At 1:00 Treasury will auction $16B of 30 yr bonds, it will be a new issue of 30s. Yesterday the 10 yr auction met with good demand; today’s auction will also likely see firm demand according to traders we talk with. If however the 30 doesn’t meet expectations rates will likely come under additional pressure. The 10 yr note still cannot clear 3.14%, the yield level achieved in early March before running up to 3.60%. Technically the bond and mortgage markets are still in overbought conditions; as noted yesterday, the longer the 10 yr fails to break resistance the more likelihood rates will notch up a little. Logic being, why continue to hold the 10 yr if this is the best the market can do; there is always hot money in the bond markets (trading on short term outlooks), that money moves quickly when the markets seems to run out of momentum.
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.
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.
Thursday Trivia
Yesterday the US Federal District Court denied the request for an injunction and restriaining order on the implementation on the Loan Offcier Compensation rule. This is not just a mortgage industry issue as who is to say another industry will not be targeted in the future and our government will take a stab at legislating that industry out of business? Housing led us into the economic crisis and housing will be the catalyst for a true recovery. All of our governments “well intentioned” actions have done nothing but to further bog down the mortgage industry, increase costs, confuse the consumer, and slow down a very slow moving recovery. Thank you Washington DC. To read the courts opinion you can follow this LINK.
Treasuries and mortgages doing better early this morning. At 8:30 weekly jobless claims saw a decline of 6K filings from last week, however last week’s claims were revised from 282K to 394K. Continuing claims were down 51K to 3.714 mil but as with the claims continuing claims were revised from 3.721 mil last week to 4.22 mil in the revision. The 4 wk average also increased to 394,250 frm 391.000 based on the revisions. The claims report today is data collected after the BLS gathered the data for tomorrow’s monthly employment report.
Next up this morning, the March Chicago purchasing managers index, expected at 70.0 frm 71.2 in Feb, was 70.6. The new orders component at 74.5 frm 75.9, the employment index at 65.6 frm 59.8 the highest read since Dec 1983 and the prices pd for materials at 83.4 frm 81.2, the highest since July 2008. Employment and prices are more evidence that the economy is improving along with inflation concerns. However, there was little reaction to the report, treasuries and mortgages held steady with small price gains and the stock market unchanged.
Finally today, Feb factory orders were expected to be up 0.4%, were down 0.1% and Jan revised to +3.3% frm 3.1%.
In Europe inflation data was stronger than expected; in the 17-nation euro region inflation increased to 2.6% in March from 2.4% in February, European Union estimates showed today. That’s the fastest pace since October 2008, and exceeds the ECB’s 2.0% limit for a fourth month. Economists had forecast inflation to hold steady. Next week the ECB will meet to discuss increasing its base lending rate, the inflation data today further increases the chance ECB will increase rates. Following moves in China, Brazil, Russia and India base lending rates are moving higher. In the US so far, the Fed still holds that inflation is not an immediate problem and plans to continue the easing move of buying $600B of treasuries. Whether or not inflation is about to click in, the bond market will face a huge hill to climb keeping long term rates including mortgages at or below the present levels. Fed officials are increasingly more divided on ending QE 2 sooner and less buying than originally intended; Bernanke however appears to be holding with completing the entire $600B buying that will conclude at the end of June.
After all the data this morning the rate markets holding better than we would have thought given the strong Chicago PM index and inflation increase out of Europe. The stock market holding unchanged. Technically the 10 yr held 3.50% on Tuesday giving traders a little opportunity but overall the bond market still holds a bearish outlook for rates. The rest of the session will be setting up for tomorrow’s employment report with estimates still for an increase of 200K jobs and the unemployment rate unchanged at 8.9%. If floating stay close today; normally we do not like having a market position into employment as it is too volatile.
Monday Mania!
More selling in the rate markets this morning; as we have noted recently interest rates are headed higher after all the safety moves triggered by Japan’s problems. The stock market took a heavy hit on panic selling over Japan but is now trading better than prior to the earthquakes and tsunami. Interest rates also higher than prior to the issues. In Japan over the weekend, a lot of contaminated water surrounding the reactors and calls for the head of the power company to resign as the inability to provide accurate information or know what is happening has finally pushed the normally placid Japanese government to push for a change in leadership.
This morning at 8:30 Feb personal income and spending were reported; income was expected to have increased 0.3% it was on target, spending expected up 0.5% increased 0.7%. Personal savings was up 5.8% for the month but down from +6.1% in Jan. The PCE price index increased 0.6% and yr/yr +2.1%; the highest monthly increase on the PCE since June 2009 and the highest yr/yr since May 2010. ON the release interest rate prices already lower were knocked a little lower.
The DJIA opened a little better (+11), not much but still starting higher after last week’s strong rally increasing 362, NASDAQ +99 last week and S&P +35. All indexes now above levels prior to Japan.
At 10:00 Jan pending home sales, sales with contracts signed but not yet closed, was expected up 0.3% after falling 2.8% in Jan. increased 2.1% but yr/yr still down 8.2%. No initial reaction to the report.
This afternoon at 1:00 pm Treasury begins its monthly 2, 5, and 7 yr auctions with $35B of 2 yr notes. Should go well given the recent increase in rates, its a 2 yr and generally does get decent demand.
This Week’s Economic Calendar:
Tuesday;
9:00 am Jan Case/Shiller 20 city home price index (-3.3%)
10:00 am Mar consumer confidence index (65.0 frm 70.4)
1:00 pm $35B 5 yr note auction
Wednesday;
7:00 am weekly MBA mortgage applications
8:15 am ADP non-farm private jobs estimate for March (210K)
1:00 pm $29B 7 yr note auction
Thursday;
8:30 am weekly jobless claims (383K -1K; continuing claims 3.70 mil frm 3.721 mil)
9:45 am Mar Chicago purchasing mgrs index (69.5 frm 71.2 in Feb)
10:00 am Feb factory orders (+0.4%)
Friday:
8:30 am March employment data (non-farm jobs +185K, non-farm private jobs +203K, unemployment rate unch at 8.9%)
10:00 am March Nat’l ISM manufacturing index (61.4 unch frm Feb)
Feb construction spending (-0.7%)
3:00 pm March auto and truck sales (N/A)
Last week St Louis Fed Bullard suggested the Fed should review whether to curtail plans to buy $600B in Treasuries (QE 2) because of strong economic data. His remarks added additional reason for selling the bond and mortgage markets. While we don’t think the Fed will actually cut the intended $600B of purchases scheduled to end at the end of June, we do not believe there will be anymore quantative easing from the Fed. Although there are 90 days left for Fed purchases markets won’t sit tight until the end comes. Traders already moving to discount the end and concerns about who will pick up the slack in private markets once the Fed finishes; $10B a month by the Fed needs that much more demand. That is unlikely at the present interest rate levels. We have note for a week that rates would increase, although they did last week we are not expecting an explosion in rates. Looking for the 10 yr note and mortgage rtes for 30 yr fixed to be up about 50 basis points from present levels by the end of the year.
The Week Ahead
This Week unlike last week there are events and data points everyday for the bond and mortgage markets to consider. This is employment week with the March employment data on Friday, early expectations are for non-farm jobs to increase 185K with non-farm private jobs up 203K, the unemployment rate is expected unchanged at 8.9%. In the meantime Feb personal income and spending out on Monday, Mar consumer confidence on Tuesday, Thursday has weekly jobless claims, the Chicago purchasing mgrs index, Friday the ISM national manufacturing index.
Recent better than expected earnings reports and relaxing of concerns from Japan has boosted equity markets and interest rate markets are taking on a more negative technical pattern. We remain bearish for the outlook on rates, however we are not looking for rates to move substantially higher. The prime and only reason the bond and mortgage markets rallied recently was over safety moves on the Japanese nuclear problems.
Not only economic data this week, but Treasury borrowing. Tuesday $35B of 2 yr notes, Wednesday $35B of 5 yr notes and Thursday $29B of 7 yr notes. Recent auctions still seeing OK demand but not quite as strong as auctions last year. Debt problems in Europe (Portugal, Spain, Greece and Ireland get coverage in the media but are not having any noticeable impact on US bond markets.
Monday Minutia – 11/29
Well if you are reading this then you survived Thanksgiving and the following day known affectionately as “Black Friday”! Someone will need to eductae me as to the merits of eating, drinking, and being meery at Thanksgiving and then carting your ass down to the local shopping center to stand in line and get into your favotie store at midnight for some bargains?!? I heard a number of stories in regards to experiences and it is a wonder that there are not stories of riots due to some of the shopping tactics employed by the veteran Black Friday shoppers!
After hitting the lows of the year on rates about 3 weeks ago, the Federal Reserve launched the vaunted QE II (Quantitative Easing II) and the world and domestic markets met the launch with anthing but enthusiasm! Rates spiked dramatically up (.375% to .625% in rate) and have since seemed to stabilize but have not as yet begun any substantive settling down. What is influencing the market right now?
- High unemployment and the weak housing market continues to hold back economic growth.
- Uncertainty on the housing market brought on by the foreclosure mess and the “robo signing” scandal continues to hold down any chance at a housing recovery.
- Unemployment is still high at 9.6%. When factoring in discouraged workers and those that have “settled” for part time work we are looking at a number more like 17.1% nationwide!
- Inflation is not a factor at a 1.1% year over year rate.
- QE II is designed to create inflation so those of us that are operating on less income can pay more for the ggods and services we need to survive!?!? (you figure that one out)
On the economic calendar for this week is:
- 9:00 am Case/Shiller 20 city home price index (+1.0%)
- 9:45 am Chicago purchasing mgrs index (59.8 frm 60.6 in Oct)
- 7:00 am Weekly MBA mortgage applications
- 8:15 am ADP employment data (+58K new private job growth)
- 8:30 am Q3 productivity (+2.4% frm +1.9%)
- Q3 unit labor costs (-0.4% frm -0.1%)
- 10:00 am Nov ISM manufacturing index (56.4 frm 56.9 in Oct)
- 2:00 pm Nov auto and truck sales (autos 3.71 mil, trucks 5.35 mil)
- Fed’s Beige Book (detailed report on the economy)
- 8:30 am weekly jobless claims (+16K to 423K: con’t claims 4.20 mil frm 4.182 mil)
- 10:00 am Oct pending home sales (unch frm Sept)
- 8:30 am Nov employment data (non-farm jobs +130K, non-farm private sector jobs +140K; unemployment unchanged at 9.6%)
- 10:00 am ISM Services sector index (Nov 55.0 frm 54.3 in Oct)
- Oct factory orders (-0.8%)
Expect more volatility on the rate markets as we work through the reports and the holiday season. Thanks and have a great day!