Early trade this morning was generally flat in stocks and bonds. This week has seen hardly any movement US financial markets, no solid economic data and not much coming from Washington the sequester debates. The 10 yr note yield has stayed in a 6 bp range (closings) and 30 yr MBSs as of 9:00 this morning down just 18 bp frm last Friday’s close. This morning at 8:30 Dec trade balance was somewhat a surprise, the deficit came in at -$38.5B, much lower than the $-42.5B expected. The narrowing gap was led by record exports of petroleum. The lower deficit in Dec is likely to show up again at the end of Feb when we see the preliminary Q4 GDP revisions; the advance report was a -0.1% growth, with lower deficit the revision will likely show that the economy actually did see growth in Q4. For all of 2012, exports climbed 4.4% to a record $2.2 trillion. Imports advanced 2.7% to $2.74 trillion. That pushed the trade gap last year down to $540.4 billion from $559.9 billion in 2011.
Prior to the Dec trade data at 8:30 the stock indexes were unchanged; after the report indexes improved into the 9:30 open. At 9:30 the DJIA opened +24, NASDAQ +12, S&P +4; 10 yr note at 1.97% +1 bp and 30 yr MBS -8 bp.
The East coast is headed for a blizzard later today, as much as 3 feet of snow with 60 MPH winds. Airlines are closing, rapid transit in Boston closing at 3:30 today. Not a market mover though, since there isn’t much news there is a lot of talk about it. So far the NY exchanges are saying they will stay open regular hours today.
Currency wars continue; a few weeks ago the Japanese prime minister said Japan would make moves to weaken the yen, since then the yen has declined against the dollar frm 78 to 94 yesterday (78 yen per dollar to 94 yen to the dollar). This morning the yen has increased the most in a day in almost two years on comments frm the prime minister that the planned decline for the yen has been too quick. These days currency wars are running at flank speed as every country is trying to weaken their currency to gain advantages for their exports. The Fed is printing money at warp speed, Japan and Europe also deflating their currencies.
At 10:00 Dec wholesale inventories were expected to be +0.7% frm +0.3% in Nov; as reported inventories up just 0.1% with final sales unchanged against expectations of sales being up 0.6%. No immediate reaction to the report.
Treasuries and MBSs remain in very narrow ranges; the 10 yr has near term resistance at the 1.95% area with its 20 day average increasing every day, today at 1.93%. 30 yr MBSs closed at 103.50 on Jan 25th, this morning at 10:00 at 103.23 -27 bp in over two weeks; essentially unchanged in the period. There is still the view out there that the stock market is overdue for the correction we continue to talk about, so far talk is all there has been. Some pundits calling for a 10% decline in the key indexes; we don’t agree with that much fall. There is so much money resting on the sidelines wanting to get in that 10% doesn’t seem very likely. The other thing we heard yesterday from one of the mortgage market commentators is that the 10 10 yr note will decline to 1.50%, again we don’t agree; when stocks do retreat the beast we can see for the 10 yr is a decline to 1.75%; furthermore if that does occur it will not last long at that level. Be careful of extreme estimates from those whose forecasts are too optimistic. Makes for comforting reading, but unlikely in our view at the moment.