FNMA 30-YR 4.5%
Previous close 100.688
Opened up 0.12bp @ 100.813
Economic Data:
EUR / USD 1.3569 Down 0.0038
USD / JPY 90.685 Down 0.5700
GBP / USD 1.5570 Down 0.0103
OIL 77.02 Down 0.31
Gold 1,113.00 Down 7.10
Key Economic News:
It's PPI, Philly Fed, the index of leading indicators, and the usual weekly reports.
8:30: Producer price index for Jan...will food and energy push the index up?
We expect a large increase in headline index, with both food and energy contributing. Ex food and energy, the index should be reasonably benign, though confidence in PPI estimates is aways low.
On headline, median forecast (of 75): +0.8%, ranging from +0.2% to +1.4%; last +0.2%.
On core, median forecast (of 71): +0.1%, ranging from -0.1% to +0.5%; last flat.
8:30: Unemployment insurance claims...weather could distort to the low side?
Now that the Labor Department has finally worked through the filing backlog that apparently built up at the end of the holiday season, we have a new distortion to worry about - potential impact of last week's winter weather through most of the country on claims. Initial claims could be biased down significantly, especially since the highly populated areas to hit late in the week. Data o continuing claims should not show too strong a distortion, but as usually the interpretation of these numbers is complicated by the extended benefit programs, the enrollments in which have been seesawing in recent weeks on a moderately rising trend - just about equal to the downward trend in the continuing benefits themselves.
For initial claims, median forecast (of 42): 438k, ranging from 400k to 480k; last 440k.
For continuing claims, median forecast (of 11): 4.5 million, ranging from 4.5mm to 4.55mm; last 4.538mm.
10:00: Philadelphia Fed business index for Feb...Results from the Empire survey serve as a reminder to look under the hood of this report. Although forecasts show a slight improvementin the median, the key is whether orders and shipments follow such an increase, if it occurs. In the Empire survey they did not.
Median forecast (of 57): +23, ranging from 0 to +23; last +15.2.
10:00: Index of leading indicators for Jan...declines in real M2 and permits stall the gain. In combination, the sharp drop in M2 (-0.8% in nominal terms which looks even weaker in real terms), the drop reported yesterday for housing permits, and the processing-induced back-up in jobless benefit claims offset nearly 3/4 point of elsewhere on the list. With orders generally assumed not to be contributing pending actual data, and with the S&P 500 struggling in January, this is enough to keep the index flat, in our estimation.
Median forecast (of 57): +0.5%, ranging from -0.4% to +1.0%; last +1.1%.
16:30: Fed balance sheet data. Although the size of the Fed's balance sheet hardly budged last week, excess reserves rose $50bn in the latest (two-week) reserve maintenance period. Most of this was due to a drop in the Treasury's cash balance at the Fed, as the statutory debt ceiling (since lifted) was beginning to bind.
Advice:
Good article on Bloomberg.com- Federal reserve officials set long-term goal to keep only US government securities in their portfolio as they debated how and when to pull back on the most aggressive monetary policy in US history.
PPI rises sharply with trucks and planes pushing core; claims disappoint across the board
Energy drives headline producer price index higher with sticky core reading due mainly to increase in lightweight trucks and aircraft. Initial claims rise, continuing claims stall at upward-revised level, and show no sign of declining through late Jan when extended are factored into the mix.
Key Numbers:
PPI +1.4% in Jan (mom, +4.6% yoy) vs median forecast +0.8%.
ex food and energy +0.3% in Jan (mom, +1.0% yoy) vs median forecast +0.1%.
Initial jobless claims +35k to 437k in week ended Feb 13 vs median forecast 438k.
Continuing claims flat at 4.563 million in week ended Feb 6 vs median forecast 4.5 million.
With a stronger dollar and weaker PPI numbers, I expect the market to improve today. I would float.
My position on MBS has changed to natural today (buy back short position).
Expert Commentary Neil Trenerry
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