Stock indexes started better this morning while the 10 yr note started unchanged and 30 yr MBSs +9 bp at 9:00. March personal income and spending were out at 8:30; income up 0.2% with forecasts of +0.4%, spending at +0.2% slightly better than forecasts. Last Friday the 10 yr note closed at 1.67%, the lowest close for the note this year; so far this morning the note is holding well and MBSs looing good technically above our resistance at 104.56 on 30 yr May Fannies.
This week has a lot of data and information to think about. The economic calendar is full of data on businesses and manufacturing with both ISM reports (manufacturing and services), construction spending, personal income and spending (Monday), auto and truck sales, Q1 productivity and unit labor costs. The main focus however is twofold; the FOMC meeting that concludes Wednesday with its policy statement and on Friday the April employment report. The early estimates are for non-farm job growth at 153K after only 88K jobs in March, the unemployment rate unchanged at 7.6%, which should not be a focus as it doesn’t really tell the tale of job creation. Wednesday starts the ball rolling on employment when ADP reports its private jobs numbers for April, presently the estimate of what ADP will say is 155K new jobs.
The FOMC meeting starts Tuesday and ends Wednesday. Markets will direct attention to how the Fed frames the present economy that is showing signs of slowing. The Fed is facing an increasing concern of deflation, CPI is now under the 2.0% level thatr the Fed wants, at 1.7%. What to do? Most likely nothing this time around, but we will see how the statement reads. This policy statement will be tough to formulate; the Fed is likely to continue its easing clear through to the end of the year, but what is the plan if deflation concerns increase? At the moment the Fed is failing on both of its legislated mandates; the employment market is still not moving after years of money printing and low rates, now recent measurements on inflation is not meeting the Fed’s target on the down side. This week should keep market volatility on high.
Ever since the Fed began its QEs three years ago there has been this fear that it would trigger an increase in inflation; gold exploded and commodities rallied, the bond and mortgage markets benefited as rates tumbled. Inflation concerns have gone the way of the wind over the last month. The global economy, including the US is slowing; most every measurement of growth frm the US, Europe and China are showing signs of decline. The new headline is deflation, inflation is, at least for now, dead. Slowing inflation is giving central bankers more room to continue printing money, but it isn’t a good thing. More than half of the world economy, including the U.S. and the euro area, instead confronts inflation below the central banks’ desired levels. Declining prices are good news for consumers, but the danger is if prices of goods fall consumers will hold off spending in anticipation of lower prices ahead and companies postpone investments and hiring further dragging the outlook down.
At 9:30 the DJIA opened +54, NASDAQ +14, S&P +5; 10 yr 1.66% -1 bp and 30 yr MBSs, higher earlier were unchanged on the day.
At 10:00 March pending home sales frm NAR; +1.5% frm Feb, +7.0% yr/yr. NAR said listings in March were down 17% frm a year ago; more evidence of very low inventories.
All technicals continue to hold positive biases. With the FOMC announcement on Wednesday and April employment data on Friday markets are likely to be choppy with not much change, at least until the FOMC statement.
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