Friday, 3/12/09 10:20 AM
Treasuries and mortgages opened weaker early this morning on better trading in the stock index futures. At 8:30 Feb retail sales were much better than expected adding more to the stock indexes and pressing rate markets a little more. Retail were expected to be up 0.2% overall and ex autos unchanged; sales increased 0.3% and when auto sales are stripped out sales were up a solid 0.8%; when auto and gas sales are removed, up 0.9%. Sales were markedly stronger, particularly with the number of major snow storms in Feb that hit much of the East and Mid-West. At 9:00 the 10 yr note -7/32 at 3.76% +3 BP, mortgage prices -5/32 (.15 bp) and the DJIA index +39. At 9:30 the DJIA opened +20, 10 yr note -4/32 and mortgage prices off 4/32 (.12 bp).
Better retail sales this morning linked with last week's better than expected employment report are suggesting consumers are starting to spend and job losses may have finally ended. That said, there is still a cadre of non-believers or at least still not convinced the economic recovery will continue. We have been one of those that have questioned how strong and lasting the economic rebound will be; as each better than expected economic reading hits it is increasingly difficult to question the recovery. While job losses may have essentially ended, new hirings will be very slow to rebound. Q4 productivity and unit labor costs strongly imply employers will continue to get more from workers and drag feet on new hirings. What we can agree on is that the worst of the recession is behind us. What we still worry about is that there isn't much recovery in the housing sector, the loss of wealth, slow increase in employment, a new consumer realization that excessive spending is bad and savings is good, and the possibility of a double dip if employment remains weak.
At 9:55 the U. of Michigan consumer sentiment index, expected to increase slightly to 73.8 frm 73.6 at the end of Feb. The index declined to 72.5 putting a little support in the bond market and taking away some of the strength in equities.
Finally today, at 10:00 Jan business inventories, expected up 0.2%, were unchanged.
San Francisco Fed Pres Janet Yellen will the picked by Obama as the new Vice Chair of the Fed. A good choice, but Yellen is a dove on interest rates. Yellen, who served as President Bill Clinton’s chief economist in the 1990s, said last month that the U.S. economy “still needs the support of extraordinarily low” interest rates. She would gain a permanent vote on monetary policy, instead of having a vote one year out of every three as a regional Fed chief. On Feb. 22, Yellen said the U.S. economy will operate below potential this year and next and still needs low interest rates to gain strength. The Fed vice chairman has few formal duties except to preside over board meetings in case of the chairman’s absence; but carries influence on various strategic decisions. Her dovish views on keeping interest rates (the FF rate) low longer than some want may lead to higher long term rates is inflation expectations increase.
The U. of Michigan index of sentiment turned the rate and stock markets around; after trading lower on the retail sales this morning the bond market has returned to unchanged as the stock indexes declined.
PRICES @ 10:10 AM
10 yr note: 99.02 unch 3.74% unch
5 yr note: 99.22 03/32 2.44% +3 BP
2 Yr note: 99.26 -1/32 0.97% +1 BP
30 yr bond: 99.12 +4/32 4.66% -1 BP
Libor Rates: 1 mo 0.230%; 3 mo 0.257%; 6 mo 0.397%; 1 yr 0.868%
30 yr FNMA 4.5 Apr: @9:30 100.25 -4/32 (.12 bp) (-5/32 (.15 bp) frm 9:30 yesterday)
15 yr FNMA 4.0 Apr: @9:30 101.25 -2/32 (.06 bp) (-1/32 (.03 bp) frm 9:30 yesterday)
30 yr GNMA 4.5 Apr: @9:30 101.12 -4/32 (.12 bp) (-5/32 (.15 bp) frm 9:30 yesterday)
15 yr GNMA 4.0 Apr: @9:30 102.14 -4/32 (.12 bp) (-4/32 (.12 bp) frm 9:30 yesterday)
Dollar/Yen: 90.92 +0.42
Dollar/Euro: $ 1.3742 +$0.0063
Gold Apr: $ 1107.40 -$0.80
Crude Oil Apr: $ 82.55 +$0.44
Goldman-Sachs
Commodity Index: 529.72 +3.18
DJIA: 10611.16 -0.68
NASDAQ: 2363.96 -4.53
S&P 500: 1149.06 -1.18