Thursday, 3/4/10 10:17 AM
Treasuries opened unchanged this morning but mortgages started better in early trade. At 8:30 weekly jobless claims were down 29K to 469K, markets were expecting a decline of 20K. Last week's initial claims were originally reported +22K at 495K; today last week was revised from +22K to +19K. Continuing claims fell to 4.5 mil frm 4.634 mil last week. The take away, the unemployment situation is slightly better; however, as will be the case tomorrow with the Feb employment report, the claims data is questionable due to the weather conditions that closed down the East twice in Feb. The number of people receiving unemployment insurance decreased to the lowest level in a year, while those receiving extended benefits climbed. Today’s report showed the number of people who’ve used up their traditional benefits and are now collecting extended payments increased by about 198,000 to 5.87 million in the week ended Feb. 13.
Also at 8:30 revision of Q4 productivity was expected unchanged at +6.2%, was revised higher to +6.9%, Q4 unit labor costs were also revised from -4.4% to -5.9%. Higher productivity leads to lower labor costs, getting more out of workers. Productivity and unit labor costs were the key drivers for the Q4 GDP jump to +5.9%.
Not much reaction to the 8:30 data in the bond and mortgage markets; the stock indexes did move up slightly but not much; the 10 yr +1/32, mortgage prices +3/32 (.09 bp). Claims are questionable and the other releases are history and carry little weight looking forward. At 9:00 markets were beginning to move; the DJIA +28 points, the 10 yr note -6/32 to 3.65% +2 BP and mortgage prices -3/32 (.09 bp). At 9:30 the DJIA opened +20, the 10 yr note -3/32 at 3.64% +1 BP and mortgage prices +1/32 (.03 bp).
Two more data points at 10:00; Jan factory orders were expected to be up 1.8%, orders were up 1.7%, ex transportation orders up 0.1%; Dec orders were revised from +1.0% to +1.5%. Jan pending home sales were thought to be up 1.7%, pending sales fell 7.6% in the month. On a yr/yr basis pending sales were up 12.3% frm Jan 2009. As with tomorrow's employment report and today's weekly jobless claims, the NAR is blaming the Jan decline on the weather. Initial reactions improved the 10 yr price and mortgages a little and dropped the stock indexes somewhat.
Nothing more today but to wait for the employment report tomorrow. The 10 yr note continues to be forced back every time it moves to 3.60% area but it also continues to trade below its 20 and 40 day moving averages. The momentum oscillators are at neutral levels, not bullish or bearish. The FNMA Mar coupon is also a mixed technical picture, trading above its key 20 and 40 day averages on the price chart but the relative strength index is at very overbought levels. Mortgage prices cannot continue to increase without some pullback; every time the RSI index is at this high level the next move is a decline in prices. I am not suggesting this is the end of the rally in mortgages, but a correction is not far off.
Tomorrow's Feb employment data will be clouded by the Feb weather; regardless of how it comes out markets will put an asterisk on it due to the severe winter weather over most of the country in Feb. Current forecasts call for a decline of 75K jobs, the estimates have been notching lower through the week as weather factors have been dragging the forecasts lower. The unemployment rate is expected to increase to 9.8% frm 9.7% in Jan, we expect the unemployment rate to increase to 10.0%. As the economy recovers more people will be back looking for work, that will have the affect of increasing the unemployment percentage. The BLS uses a phone survey to establish the unemployment rate, if a person says he or she has not been looking for a job, that individual is not counted as unemployed. Once people go back to looking and not finding a job, the unemployment rate will edge up.
PRICES @ 10:10 AM
10 yr note: 100.00 unch 3.63% unch
5 yr note: 100.14 -1/32 2.28% +1 BP
2 Yr note: 100.01 -2/32 0.85% +3 BP
30 yr bond: 100.23 +3/32 4.58% -0.5 BP
Libor Rates: 1 mo 0.228%; 3 mo 0.252%; 6 mo 0.383%; 1 yr 0.834%
30 yr FNMA 4.5 Mar: @9:30 101.07 +1/32 (.03 bp) (+7/32 (.22 bp) frm 9:30 yesterday)
15 yr FNMA 4.0 Mar: @9:30 102.03 -1/32 (.03 bp) (+7/32 (.22 bp) frm 9:30 yesterday)
30 yr GNMA 4.5 Mar: @9:30 101.22 +1/32 (.03 bp) (+6/32 (.18 bp) frm 9:30 yesterday)
15 yr GNMA 4.0 Mar: @9:30 102.26 unch (+7/32 (.22 bp) frm 9:30 yesterday)
Dollar/Yen: 89.20 +0.72 yen
Dollar/Euro: $1.3628 -$0.0064
Gold Apr: $1135.00 -$8.30
Crude Oil Apr: $80.52 -$0.35
Goldman-Sachs
Commodity Index: 523.68 -1.76
DJIA: 10433.28 +35.52
NASDAQ: 2283.12 +2.44
S&P 500: 1121.90 +3.11