Wednesday, 3/3/10 4:13 PM
Treasuries continued to trade quietly but slightly weaker today, mortgages hung close to unchanged most of the day after opening lower in price this morning but were improved this afternoon. Not much going on in the equity markets either as investors await the Feb employment data on Friday. There is always something to muck up the report, this time its the weather in Feb. At the beginning of the week the so-called consensus for a decline of 20K jobs, as the week has progressed the estimates have been continuing to be ratcheted up for job losses; the present "consensus" is for a decline of 75K due to the snow storms in the East and Mid-Atlantic regions. As I understand it, the way the BLS gathers the data is to canvas large employers with the question, how many employees do you have at work today? If an employee were absent it is counted as a job loss, doesn't matter that the employee is still on the payroll. In the ADP employment estimate, released this morning with a job loss of 20K, asks the question, how many employees are on the payroll? If that is the way its done then the estimates that are increasing everyday is due to the snows that kept many away from work temporarily. So; when we get the data on Friday, does it mean anything at all? This go round the unemployment percentage is likely to be the dominant focus.
The Fed was out this afternoon with the Beige Book. On the margin the take away was that for the first time the Book used the wording that the economy is firming (but slowly). Other than that there wasn't anything in the report that markets paid much attention to; the bond and equity markets barely moved when the Book hit at 2:00. Consumer spending increased in many regions, while commercial real estate and loan demand were “weak” and labor markets “soft.” “Consumer spending improved slightly in many districts since the last survey, but severe snowstorms in early February limited activity in some districts.” “Hiring plans still remained generally soft.” “Most districts attributed stronger home sales to the home-buyer tax credit, with several contacts apprehensive about future sales once the credit expires on April 30.” Generally the Book focused a lot on the weather in Feb. Today’s Beige Book reflects information collected on or before Feb. 22 and summarized by staffers at the Kansas City Fed.
Greece's debt problems are still a focal point for markets. Why should we care about Greece? Not a bad question; the reason centers on sovereign debt problems that many now believe are more serious than what was thought previously, if Greece can't meet debt commitments there is concern it may have a domino affect through Europe and some US financial firms. Germany was once thought to be ready to help, but today Germany's Chancellor Angela Merkel said a meeting in two days with Greek Prime Minister George Papandreou won’t be “about aid commitments.” Greece is not able to cut deficits enough to satisfy Germany, and in Greece people are becoming more frustrated with proposed cuts. One of the recent supports pushing rates lower has been safety moves into US bond markets.
Tomorrow at 8:30 weekly jobless claims are expected to be down 20K to 475K after an increase in job losses last week of 22K. Also at 8:30 Q4 productivity revision is expected to be unchanged from the advance number, +6.2% and Q4 unit labor costs also unchanged at -4.4%. At 10:00 Jan factory orders are expected to be up 1.7%. Also at 10:00 NAR's pending home sales are expected to be up 1.7% in Jan. Being employment eve traders will continue to adjust positions for Friday's report which as we stated above will likely be a non--starter given the weather influence in Feb.
Treasuries were about flat today but mortgage prices did manage to increase from morning pricing levels. The 10 yr still is collared at 3.60% and in turn will keep mortgage rates in check until 3.60% is taken out. Although mortgage prices did improve this afternoon, the momentum oscillators are throwing off overbought readings.
PRICES @ 4:00 PM
10 yr note: 100.01 -2/32 3.62% +0.5 BP
5 yr note: 100.16 unch 2.27% unch
2 Yr note: 100.04 -1/32 0.81% +2 BP
30 yr bond: 100.22 -6/32 4.58% +1 BP
Libor Rates: 1 mo 0.228%; 3 mo 0.251%; 6 mo 0.383%; 1 yr 0.834%
30 yr FNMA 4.5 Mar: 101.19 +6/32 (.18 bp) (+9/32 (.28 bp) frm 9:30)
15 yr FNMA 4.0 Mar: 102.04 +5/32 (.15 bp) (+2/32 (.06 bp) frm 9:30)
30 yr GNMA 4.5 Mar: 101.23 +6/32 (.18 bp) (+8/32 (.25 bp) frm 9:30)
15 yr GNMA 4.0 Mar: 102.27 +5/32 (.15 bp) (+2/32 (.06 bp) frm 9:30)
Dollar/Yen: 88.41 -0.38 yen
Dollar/Euro: $1.3700 +$0.0085
Gold Apr: $1139.90 +$2.50
Crude Oil Apr: $80.90 +$1.22
Goldman-Sachs
Commodity Index: 525.44 +6.87
DJIA: 10396.76 -9.22
NASDAQ: 2280.68 -0.11
S&P 500: 1118.79 +0.48