Very early this morning the 10 yr note traded down 1 bp at 1.99% frm yesterday’s close. At 8:30 better news on the Empire State manufacturing index; the index surprisingly jumped to +10 frm -7.8 in Jan with forecasts of -0.2 expected. There was not much movement in either the stock indexes or treasuries but the better read did take something away frm the rate markets. The index is the highest since May 2012; gains in orders, sales and employment during the month show manufacturing is starting to recover from a slowdown in the second half of 2012 after companies brought inventories more in line with demand. US stock indexes came off their lows but still were negative at 9:00; all European stocks rallied on the US report.
Two more reports at 9:15; Jan industrial production expected to have increased 0.3% and factory usage was expected at 78.9% frm 78.8% in Dec. Production reported down 0.1%, less than thought; factory usage at 79.1% with Dec revised from 78.8% to 79.3%. The reaction to the mixed data did add a little to stock indexes and pushed the 10 yr note back above 2.00% to 2.01%. Industrial production lower but nothing significant after the biggest back-to-back gains in the last 30 years; revised data for Dec and Nov showed the largest gains since Feb. 1984. The manufacturing report, part of the industrial production data, and accounts for 12% of the economy declined 0.4$ after Dec was up 1.1% and Nov +1.7%.
Gold has lost a lot of its luster recently and is down dramatically this morning as gold bugs are throwing in the towel on gold forecasts of $2,000+ per ounce that once was a “given” are now history. You know it’s over when spam mail floods your e-mail touting gold as a good buy. Pump and dump.
At 9:00 the 10 yr unchanged at 2.00%, 30 yr MBSs lower, down 9 bp (GNMAs -34). At 9:30 the DJIA opened +8, NASDAQ +4, S&P +1; 10 yr note 2.01% +1 bp, 30 yr MBS price -9 bp on conventionals while FHA price down 31 bp.
At 9:55 the U. of Michigan consumer sentiment index was expected at 75.0 frm 73.8; the index rocketed to 76.3 the highest since last Oct and Nov when the index was over 80. Another better data point this morning adding to the strength in the stock market. No much but the 10 yr increased to 2.02% on the report and MBS prices fell 6 more bp frm the 9:30 levels.
Interest rates are well contained in a 10 bp range on the 10 yr, mortgage interest rates in an even narrower 5 bp range on rates; there is no urgency to sell bonds and equally no reason so far to buy the note. As long as the stock indexes hold interest rates have little to suggest rates will decline. There is still a lot of belief that the stock market will enter into a correction, so far that has not occurred. It is now reasonable to assume the key S&P 500 index will continue to increase and achieve a new all-time high over 1565. Although rates are technically bearish and stock indexes technically bullish, both markets are locked into little tight ranges. The 1st of March is closing in quickly with the automatic spending cuts due to engage; Dems in the Senate want a 10 month extension to the sequester, offering some spending cuts but want tax increases also. Republicans in the House are resisting any tax increases. Markets though appear to be taking it all in stride so far; stock indexes holding and no run to safe treasuries as the days fall off.