Treasuries and mortgages opened better this morning, the 10 yr at 1.65% yesterday’s low and -2 bp frm the close. At 9:00 30 yr MBSs +12 bps frm yesterday’s unchanged prices. 8:30 Q1 employment cost index was +0.3%, expectations called for an increase of 0.5%; no reaction to the data as expected. Today the FOMC meeting gets underway but we won’t know anything until tomorrow when the policy statement is released. At 9:00 the Feb Case/Shiller 20 city home price index increased 9.3% yr/yr, slightly better than 9.0% expected; as with the Q1 employment cost index, there was no market reaction to the data. That the index didn’t increase as much suggests there is little reason to be concerned that wages will increase inflation. Inflation, as noted here over the last couple of issues, is dead; the fear now is deflation.
At 9:30 the DJIA opened -6,NASDAQ +1, S&P -1; 10 yr note 1.65% -2 bp and 30 yr MBS price +12 bps.
Next up this morning, at 9:45 the April Chicago purchasing mgrs. index, expected unchanged at 52.4. The index fell to 49.0, yet one more data point that didn’t meet forecasts. The trend of economic reports that have failed to match optimistic forecasts is continuing. The reaction added a little pressure to the stock indexes but no appreciable movement in interest rates. Economic strength declining, but so far has had little impact on the sky-rocketing stock market as investors ignore the economy in favor of betting on the Fed and continuing easing that so far has accomplished little; a trillion dollars a year added to the Fed’s balance sheet that now sits at $11 trillion.
The final data today; at 10:00 the April consumer confidence index frm the Conference Board, expected at 62.0 frm 59.7 in March. The index, contrary to most data these days, increased to 68.1 frm a revised 61.9. The stock market didn’t react positively, the DJIA continued to decline this morning. Gains in the stock market, an increase in property values and cheaper prices at the gas pump are helping stabilize household wealth. One take-away frm the stronger confidence is that consumers may increase spending; like those in Missouri, show me. The share of consumers expecting more jobs to become available in the next six months rose to 14.2% in April from 13 percent in February. The number of respondents who said jobs are currently plentiful advanced to 9.8% in April from 9.5%.
The President will hold a news conference later this morning at 10:30, something about jobs.
This week some of the focus is on the euro zone as its economy continues to contract. Business confidence fell in April and inflation rates declined. Global inflation is falling as weak economies struggle to keep prices frm continuing their downward pressures. Confidence fell to -0.93 frm -0.75 in March, the lowest since last November. Consumer confidence did increase slightly but the overall confidence index including businesses and consumers fell to 88.6 frm 90.1 in March, a four month low. The numbers are immaterial, what is material is Europe continues to drag and with it the ECB is widely expected to lower interest rates when it meets on Thursday frm 0.75% to 0.50%. The unemployment rate in the zone, 12.1% in March frm 12.0% in Feb.
Everything continues to point to lower interest rates; all technical indicators remain bullish. Rates have been declining, albeit slowly recently. Investors still in love with equities and until there is any significant pullback the slide lower in rates is likely to be slow.