Prior to 9:30 US tock indexes were trading higher, at 9:30 however the DJIA opened down 18, NASDAQ -1 and S&P -2. The 10 yr note early this morning down 8/32 at 1.98% but the softer open in the stock market the 10 was unchanged. 30 yr MBSs also abut unchanged from Friday’s close. There are no economic reports today.
Treasury will auction $72B of notes and bonds beginning Tuesday. The State of the Union is on Tuesday evening. Key economic data hits on Wednesday through Friday. Jan retail sales, weekly claims, Jan industrial production and factory use are the data we will get. The equity markets continue to hold and edge higher, as long as stock indexes continue to resist selling the bond and mortgage markets will remain in a narrow range with little change in interest rates. The 10 yr note has solid support when its yield climbs to the 2.00% area; moving above it on a couple of occasions recently but no follow-through. There has been virtually no change in US interest rates since the end of January.
Pres. Obama’s State of the Union address, according to reports, will unleash a number of executive orders and decisions on health care and a number of programs. Congress and the Administration face the March 1st deadline on the sequestration; so far nothing is happening, at least nothing that has captured much attention. Meanwhile according to the WSJ article businesses are becoming increasingly concerned about the strength of the economy going forward in 2013. Q4 2012 advance GDP was -0.1%, however we expect the preliminary report on the 28th of this month will be revised to show some growth. The Fed will continue to buy $85B of MBSs ($40B) and treasuries each month. With the economy still just stumbling along and Obama Care beginning to bite on small businesses; and the debt issues plaguing recovery, we are holding our view that interest rates will not increase much, possibly 2.25% by the end of the year. Meantime, until there is selling in the stock market rates won’t decline.
EU finance ministers are meeting today to work out a bailout for Cyprus. The Group of 20 finance ministers are scheduled to meet in Russia starting Friday. Mix in the State of the Union tomorrow evening, Treasury’s $72B of auctions this week and no supportive economic reports; there is no reason today for the stock market to improve or interest rates to change much. The stock market remains overbought and ready to retrace, the obvious question is when. Until the stock market retreats US interest rates are not likely to decline much.
Pope Benedict XVI is going to abdicate the papacy. The first time in 600 years a pope has quit. Health reasons are the reason according to the Vatican. Curious though there has been no warning, sickness of substance or any hint to would resign. Not a market mover, but thought provoking for Catholics.