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The bond and mortgage markets got a better start this morning after the big sell-off on Friday that turned our technicals frm bearish/neutral to outright bearish. The 10 broke its support at 1.84% setting of heavy covering of long bond positions and driving mortgage rates higher. The Jan employment data showed more jobs than expected and Dec and Nov jobs were revised up a total of 147K more jobs than originally reported, the average hourly earnings that declined in Dec increased 0.5%, twice what had been expected. The employment report trumped the geo-political issues; Ukraine, the Greek debt crisis, weakening European economies (except Germany). The increase in earnings and the number of new jobs put the Fed on center stage with increased belief the lift off ill begin no later than June.
The G-20 is meeting in Turkey this week; the strength of the dollar will be a major topic; the dollar’s strength is sapping US banks, the Fed is proposing to increase cash reserves potentially putting US banks at a disadvantage to the European banks. Sec Treasury Jack Lew; “We’re getting some benefit now from oil prices in terms of the economy getting a bit of a boost on top of that,”….. “So I’m feeling pretty confident that we’re looking at a good period ahead.” Lew said the U.S. dollar is “stronger than a lot of the economies that we compete with” and “the real challenge is getting other economies to get back in the growth pattern where they’re doing better,” according to an article on CNBC’s website.
There are no economic data points today, and this week has very little key reports; Jan retail sales on Thursday the main measurement. Trading this week should remain volatile after the increase in interest rates last Friday. Crude oil continues to frame economic forecasts; estimates for the price suggests no one has much of a clear picture now. Crude has had the best two week gain in 17 years according to oil experts that track those kind of things. The situation is volatile, and forecasts are all over the place — from $30 a barrel predicted by the president of Goldman Sachs to as high as $200 a barrel seen by the head of OPEC. What’s an investor to think? In 2015, the average price is likely to be anywhere from $35 to $80, according to a Bloomberg Intelligence survey of 86 investment specialists. That’s a pretty big range and will have major influence on inflation thoughts and economic forecasts.
This Week’s Calendar:
Tuesday,
10:00 am Dec JOLTS job openings (4.975 mil frm 4.972 mil in Nov)
Dec wholesale inventories (+0.1%)
1:00 pm $24B 3 yr note auction
Wednesday,
7:00 am weekly MBA mortgage applications
1:00 pm $24B 10 yr note auction
2:00 pm Jan Treasury budget (-$18.5B)
Thursday,
8:30 am weekly jobless claims (+10K to 288K)
Jan retail sales (-0.5; ex auto and truck sales -0.5%)
10:00 am Dec business inventories (+0.2%)
1:00 pm $16B 30 yr bond auction
Friday,
8:30 am Jan import and export prices (imports -3.0%; exports -0.8%)
10:00 am U. of Michigan consumer sentiment index (98.5 frm 98.1)
Friday’s strong Jan employment report increased the odds that the Fed will begin increasing interest rates by mid-year. That had been the view before weak holiday data and the issues in Europe with Greece’s debt crisis, and the fall in oil that pulled other commodity prices lower. Some analysts and economists saw deflation creep and moved their forecasts for the Fed’s lift off toward the end of the year. Now markets are back to an earlier lift off. It is a moving forecast depending on the latest key economic data here and globally. Sometime this month Janet Yellen will go before Congress for her semi-annual economic and monetary policy; until then uncertainty will continue. Worries about Greece’s debt negotiations have been contributing to swings in U.S. stocks lately. Still, most investors believe a deal will be reached and Greece won’t exit the Eurozone. Treasury auctions this week will put some pressure on the 10 yr and 30 yr bonds.
PRICES @ 10:00 AM
10 yr note: +8/32 (25 bp) 1.93% -2 bp
5 yr note: +2/32 (6 bp) 1.47% -2 bp
2 Yr note: unch 0.65% unch
30 yr bond: +24/32 (75 bp) 2.50% -3 bp
Libor Rates: 1 mo 0.171%; 3 mo 0.256%; 6 mo 0.362%; 1 yr 6.29%
30 yr FNMA 3.0 Feb: 102.38 +23 bp (-23 bp frm 9:30 Friday)
15 yr FNMA 3.0 Feb: 104.80 -4 bp (-26 bp frm 9:30 Friday)
30 yr GNMA 3.0 Feb: 103.00 +28 bp (-1 bp frm 9:30 Friday)
Dollar/Yen: 118.75 -0.37 yen
Dollar/Euro: $1.1332 +$0.0016
Gold: $1237.40 +$2.80
Crude Oil: $53.08 +$1.39
DJIA: 17,783.03 -41.26
NASDAQ: 4740.37 -4.03
S&P 500: 2053.32 -2.15
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