Interest rate markets continue to trade in a tight range, this morning the 10 yr note started down 4/32 at 1.93% +1 bp and 30 yr MBS price at 8:30 -3 bps. US stock indexes early today were pointing to a better opening at 9:30, the same as yesterday; but yesterday after opening better the DJIA dropped 117 points before ending -64. The EU is still impacting markets; although the troika and Cyprus leaders cobbled a plan to keep the country from falling out of the European Union, the plan is not likely to go down well with investors both in Cyprus and other weak EU countries. Yesterday the Dutch finance minister said the plan worked out was a blue print for future banking crises in the EU; his remark sent the DJIA down 117 points. Last night he back-pedaled and in essences retracted his remark. It a common occurrence in the EU for officials to say something then get their mouth’s smacked by other officials, or after seeing the reaction, recant.
At 8:30 Feb durable goods orders were better than expected, up 5.7% and Jan revised from -4.9% to -3.8%. Consensus estimates were for orders to have increased 3.9%. Orders for aircraft increased 95.3%, Boeing saying it received orders for 179 planes in Feb. Auto sales also boosted orders, up 3.8% the most since last July. Ex-transportation orders durables declined 0.5%, Jan though was revised from +2.3% to +2.9%. The increase in orders will likely increase the GDP estimates for this quarter. There was no noticeable reaction to the report.
The Case/Shiller 20 city housing index for Jan, out at 9:00, was expected at +8.2% yr/yr; as reported the 20 city price increase was right on at +8.1%. In Dec the yr/yr increase was +6.8%. On a month to month basis prices increased 1.0% after increasing 0.9% in Dec. Case/Shiller data is dated, two months in arrears, but does get a little attention. Not one of our favorite series though. No reaction to report.
At 9:30 the DJIA opened +67, NASDAQ +14, S&P +7. 10 yr at 9:30 1.94% +2 bp; 30 yr MBS -6 bp, FHA -12 bps.
Two major reports at 10:00. Feb new home sales were expected down 3.5% to 426K units (ann.), sales as reported were 411K (ann.), down 4.6%. Jan sales were +13.1%. The median price increased to $246,800.00, up 2.9% yr/yr. Based on current sales there is a 4.4 mo supply. Although a little weaker, overall new home sales holding up well. Builders saying finding employees is beginning to be a problem and land prices are increasing. March consumer confidence was thought to be at 67 frm 69 in Feb; the index dropped to 59.7, not what we wanted to see, however there was no initial reaction to the drop in confidence. The report and the U. of Michigan consumer sentiment index is subject to emotional variances.
At 1:00 this afternoon Treasury will begin the monthly auctions of notes totaling $99B. Today $35B of 2 yr note, likely to see good demand. Wednesday $35B of 5 yr notes and Thursday $29B of 7 yr notes.
It is Spring time; at least that is what the calendar says but with 7” of snow on the ground it surely doesn’t feel like it. In the oil world though prices are increasing as they generally do this time of the year. Crude increased $0.83 yesterday, this morning up another dollar. Fill up now or pay the price later.
Technically speaking; the MBS markets continue to struggle at present levels, the 30 yr FNMA coupon for April has yet to break above its 2 and 40 day averages. The 10 yr note is slightly better but it too is struggling at its 20 and 40 day averages. The relative strength index on the 10 is presently in positive territory but is slowing and not as bullish as at the beginning of the month. We hold with our overall forecasts; interest rates are not likely to decline much frm present levels and not likely to increase much either. As long as the Fed and other central banks remain accommodative rate should be contained in the present wide range, from 1.90% to 2.05% on the 10 yr. 30 yr MBSs have to move up to 103.03 and hold to change the soft current outlook.