This morning at 8:30 the first economic report of the week that drew any attention; weekly jobless claims. Claims were widely thought to be up about 11K to 336K frm last week, as reported claims fell 4K to 323K and last week’s claims revised slightly higher 327K frm 324K originally reported. Claims now the lowest in five years and imply that employers have reduced firings in recent weeks, but still not yet willing to radically increase hiring. The April jobs data last Friday revealed more increases in private jobs that markets were expecting, nevertheless hiring is still slow. The 4 wk average of claims, a better, smoother reading, fell to 336,750 the lowest since Nov 2007. A Labor Department official today said there was nothing unusual that affected today’s figures. The number of people continuing to collect jobless benefits fell by 27,000 to 3.01 million in the week ended April 27. There are still 11.7 million unemployed.
There was little reaction to the better claims data in stock index futures trading before the 9:30 open; the three key indexes at 9:00 were essentially unchanged. The 10 yr note yield at 9:00 at 1.80% +3 bp frm yesterday’s close, but there is a hitch; yesterday Treasury issued a new 10 yr note at the auction substituting what markets will now track as the on-the-run 10 yr. The auction drew a yield of 1.81% so compared to the auction the 10 yr was down 1 bp. 30 MBSs at 9:00 unchanged from yesterday’s close.
At 9:30 the DJIA opened +3, NASDAQ -4, S&P -1; 10 yr note at 1.80% -1 bp frm yesterday’s auction. 30 yr MBSs unchanged from yesterday’s close.
March wholesale inventories released at 10:00 was in line with estimates, +0.4% but sales disappointed, down 1.1%.
At 1:00 Treasury conclude this week’s refunding with $13B of 30 yr bonds that will be a new 30 yr bond. Yesterday the 10 yr auction was not well bid, we expect the 30 to also be somewhat disappointing.
Over the pond the BOE left its stimulus program unchanged; the BOE Monetary Policy Committee kept asset purchases at 357 pounds ($584B). The central bank also kept its key interest rate at a record low of 0.5%. UK industrial production increased 0.7% in March against forecasts of 0.2% increase, and followed the better industrial production and factory orders from Germany yesterday and Tuesday.
A couple of months ago Fannie reported a $18B profit in Q4; yesterday Freddie announced it made a profit of $4.6B in Q1. Fannie released its Q1 report a few minutes ago +$8.1B. That the two government owned agencies are now making nice profits will likely continue and return all of the bailout funds from the housing market collapse. Freddie will pay back $7B to Treasury; the agency got a $71B rescue and so far has repaid about half of it. Fannie and Freddie have returned to profitability and will end up repaying all of the tax payers money much sooner than those politicians in their panic reaction to the housing bubble burst expected. Barney Frank and Chris Dodd along with many other panicked politicians, not having much of a clue about the housing and business sectors were intent on shedding the two agencies; maybe that they are profitable now will cause a change in sentiment, especially since the two politicians that set economic recovery back at least five years have gone out to pasture with the life-long pensions.
This morning the 10 yr note is adding to its technically bearish pattern. Yesterday the note breached its 40 day average, this morning testing its 100 day average at 1.81%. MBSs still are holding together but as long as the treasury rates are increasing it is only a matter of when that MBS’s technical picture turns increasingly more negative. After the strong increase on the 10 yr rate last Friday there has been no effort or interest to retrace any of the spike, the implication is that the spike of 11 bp last Friday was not merely a knee jerk over-reaction.