Thursday, 2/4/10 10:21 AM
Markets were expecting weekly jobless claims to be down 15K to 20K; claims however were up 8K to 480K with continuing claims also slightly higher at 4.602 mil from 4.60 mil last week. The reaction was as expected, the bond and mortgage markets were boosted while the stock indexes declined. Yesterday the bellwether 10 yr yield rose to 3.70% where in the past few weeks it found support, this morning at 9:00 back down to 3.66% and remains stuck on the 10 basis point yield range that has kept rate markets generally flat for over two weeks.
Also at 8:30 this morning; Q4 productivity, expected to be +6.0% was +6.2%; in Q3 productivity was originally released at +8.1%, revised this morning to +7.2%. Productivity essentially is a measurement of what employers are getting out of their workers, the higher the better but it doesn't encourage new hires as long as current workers can produce more in the same time. Q4 unit labor costs declined 4.4%, about twice as low as the -2.5% that was expected. More productivity with a big fall in unit labor costs also begs the question about job growth. No wage growth and more production, a positive as well as a negative when job creation is considered. Lower costs fade against that inflation that continues to grip markets even though it is a Quixotian waste of concern.
At 9:30 the DJIA opened -87, the 10 yr +15/32 at 3.65% -5 BP and mortgage prices +9/32 (.28 bp).
At 10:00 Dec factory orders concluded the data today; estimates were for an increase of 0.6%. Orders as reported were +1.0%, Nov orders revised to +1.0% frm +1.1%.
Tomorrow's Jan employment data is as usual critical to markets but even more so tomorrow with revisions to the previous reports. Nonfarm payroll employment in December fell 85,000, following a revised gain of 4,000 in November and a revised fall of 127,000 in October. November's rise in jobs ended a 22-month streak of declines but revisions could do away with that modest gain. Traders will be focused on potential revisions that may be better----or worse. The present estimate for non-farm jobs is unchanged for Jan with the unemployment rate up to 10.1% from 10% over the past two months.
Ben Bernanke was sworn in yesterday for his second term and took the moment to defend the Fed's independence and said he will continue to fight for the independence but with more clarity and explanation of Fed actions and decisions. “In the interest of maintaining public confidence and promoting economic and financial stability, we must continue to protect our independence.” Congress is on the Fed recently and making noise about curtailing the Fed, introducing politics into an area that should be totally non-political. Never ending, Congress generally isn't pro-active but always ready to attack in hindsight. And for those that believe we are political in our occasional remarks about the mess in Washington; forget it. We are totally independent, have no political agenda, and will continue to rebuff the the Washington establishment when necessary as it is these days. Liberals and Conservatives alike are failing to lead; the difference is conservatives don't get their feelings hurt as liberals seem to do when criticism is levied.
Nothing left today but watching equity markets. Tomorrow's employment report looms as does next week's supply ($84B). Technically we have no real trend in the direction of interest rates, chopping in a 10 basis point range for mortgages and treasuries. Talk continues to be bullish for the economic outlook but recently markets themselves have been stable with no consistent directional movement. Most expecting the stock market to retreat in an overdue correction; interest rates expected to increase as the economy is seen as on recovery.
PRICES @ 10:10 AM
10 yr note: 97.28 +18/32 3.63% -7 BP
5 yr note: 99.21 +12/32 2.32% -9 BP
2 Yr note: 100.03 +4/32 0.82% -7 BP
30 yr bond: 96.22 +31/32 4.58% -6 BP
Libor Rates: 1 mo 0.228%; 3 mo 0.248%; 6 mo 0.385%; 1 yr 0.845%
30 yr FNMA 4.5 Feb: @9:30 101.03 +9/32 (.28 bp) (+7/32 (.22 bp) frm 9:30 yesterday)
15 yr FNMA 4.0 Feb: @9:30 101.27 +8/32 (.25 bp) (+9/32 (.28 bp) frm 9:30 yesterday)
30 yr GNMA 4.5 Feb: @9:30 101.15 +9/32 (.28 bp) (+9/32 (.28 bp) frm 9:30 yesterday)
15 yr GNMA 4.0 Feb: @9:30 102.18 +8/32 (.25 bp) (+9/32 (.28 bp) frm 9:30 yesterday)
Dollar/Yen: 90.52 -0.44 yen
Dollar/Euro: $1.3792 -$0.0090 (dollar stronger)
Gold Apr: $1071.40 -$40.00
Crude Oil Mar: $74.81 -$2.17
Goldman-Sachs
Commodity Index: 495.45 -8.67
DJIA: 10097.03 -173.37
NASDAQ: 2149.73 -41.18
S&P 500: 1075.54 -21.74