Treasuries and mortgages doing better this morning; prior to 8:30 the 10 yr was 6/32 and mtgs +3/23 (.09 bp). At 8:30 weekly jobless claims were thought to have declined 13K last week, as reported claims increased 25K to 429K frm 404K the previous week. Continuing claims did decline as unemployment compensation continues to run out fore many; 3.64 mil frm 3.709 mil. Also at 8:30 the advance look for Q1 GDP, +1.8% about where most had revised their estimates downward. A month ago Q1 GDP was thought to be up 3.0%. The price deflator (inflation read) +1.9% in line with estimates. Initial market reactions to the data; treasuries added to their gains and the stock index futures slipped a little, overall the reactions weren't much given weekly claims now well over the 400K level that most see as pivotal.
At 9:30 the DJIA opened -14 points, the 10 yr note +11/32 at 3.32% -3 bp and mortgage prices at 9:30 +8/32 (.25 bp) frm yesterday's close.
At 10:00 March pending home sales from NAR, contracts signed but not yet closed. Up 5.1% from Feb but down 11.4% yr/yr.
Markets continue to think about what Bernanke said yesterday at his press conference, Bernanke is to be lauded for his willingness to stand up with reporters and provide some additional clarity about what the Fed is thinking about raising rates. He said it would take at least two more FOMC meetings before the Fed considered any tightening. There was a lot to consider from his comments but the most intriguing comment was " Its not clear we can (the Fed) get substantial improvements in payrolls without some additional inflation risks, and in my view we can't achieve a sustainable recovery without keeping inflation under control". What that means to markets remains to be answered; keep unemployment high and keep inflation under control, or do things that lower unemployment and send interest rates higher?
As Bernanke spoke yesterday gold and oil prices exploded and the dollar was racked with more selling against the euro. Investors and traders continue to run to safety, a little into US treasuries but a huge run to gold as the outlook remains muddled to say the least. Employment isn't likely to improve much, US debt increasing is an increasing concern in global markets, inflation in the rest of the world is increasing while the US refuses to admit it, consumers are tightening discretionary spending as gas price, food prices, and price increases are beginning to be passed down to consumers and it isn't just food. The Fed still thinks commodity prices and energy price increases are "transitory" without definition as to what that means in terms of time. Bernanke admitted emerging markets are continuing to expand, yet somehow he appears to believe that the demand from those emerging markets for food and energy will not push US inflation higher and commodity and energy prices will decline.
Forcing investments to US stock markets? The Fed's plan seems to be to keep rates so low that investors are forced to invest in US equities and to keep the dollar falling to help US exports.
Treasuries and mortgage markets continue their slightly positive bullish near term outlook. The economic outlook is being re-assessed lower, markets remain believing that the Fed is correct that inflation won't be a factor for fixed income investments. Gold and silver are climbing the dollar is declining, all of it is safety trades in this very cloudy economic outlook. How much lower US interest rates can decline is questionable, if inflation fears continue to hold long term fixed income investments will not be attractive. Rates around the world are increasing, can the US continue to attract investors for our bond market? The dollar is continuing to fall against most currencies, not much progress or expectations for politicians to deal with the expanding deficit.
This afternoon Treasury will conclude its auctions this week with a $29B 7 yr auction
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