A look at the latest market conditions and the current financial calendar
Prior to 8:30 when weekly jobless claims were released the 10 yr note traded about unchanged with MBS prices down just slightly. Weekly claims were expected to be up about 12K, as reported up just 2K from a revised 302K from 300K last week. Continuing claims were slightly lower at 2.739 mil from 2.75 mil last week. The better claims data and the Brick Wall at 2.60% for the 10 pushed prices lower; down 17 bps at 8:45. US stock indexes in very early pre-opening were trading lower after the strong rally yesterday capping the biggest three day advance this year and taking the DJIA to within 200 points of its all-time high. The claims report took a lot of the weakness in the key indexes away. Yesterday the 10 ended at 2.63% early this morning at 2.66% +3 bps.
This morning in Geneva Russia, Ukraine, the U.S. and the European Union started talks in the biggest diplomatic push so far to ease tensions between Kiev and Moscow. Ukraine tried to re-take various buildings yesterday that are held by Russian separatists but couldn’t hold them. Ukraine is scheduled to hold presidential elections next month (May 25th). How this meeting will come out is questionable given Putin’s comments that he hoped not to send Russian troops into Ukraine but didn't rule it out, accusing the Kiev government of committing "a serious crime" by using the military to quell unrest. Putin noted he had been authorized by Russia's parliament in early March to use force in Ukraine if necessary, "but I really hope that I do not have to exercise this right, and that through political and diplomatic means we will be able to solve the most acute problems in Ukraine today." US markets are unmoved over the continuing issues not likely to be resolved for a very long time.
The stock market opened a little soft after the strong rally yesterday; the DJIA -22, NASDAQ -10, S&P -1; 10 yr 2.65% +1 bp and 30 yr MBS price -6 bps from yesterday’s close.
Janet Yellen yesterday made a point that the level of current inflation is worrisome that it isn’t moving to the Fed’s 2.0% preferred level. At the same time the Atlanta fed issued its monthly inflation survey from businesses. Expectations of businesses were 1.9 percent in April, according to the Federal Reserve Bank of Atlanta's most recent business inflation expectations (BIE) survey. The survey was conducted April 7–11 with 181 firms responding to questions about their business conditions, inflation outlook, and potential pricing pressures. Respondents' sales levels compared to what they consider "normal" conditions went virtually unchanged, with approximately 52 percent indicating current sales levels are at or above normal. Profit margins improved, with roughly 51 percent of respondents indicating their profit margins are at or above normal, compared to 41 percent in March. More confusion about inflation levels, but if the survey process accurate it will work against lower interest rates.
At 10:00 the April Philly Fed business index, a report we pay particular attention to, was much stronger than estimates. The consensus was for the index to increase to 10 from 9; as reported it jumped to 16.6, the best since last July. The interior components, employment and new orders also increased. The better report took stocks off their lows and MBS prices declined from 9:30 levels to -17 bp from -6 bps at 9:30.
The bond market will be closed tomorrow for Good Friday; unlikely the markets will move much with the long weekend and the Ukraine/Russia situation. Although markets don’t seem that concerned based on the lack of movement in treasury rates, caution is still underlying and supporting safe haven trades; the longer the bellwether 10 yr fails to break below 2.60% the more tenuous the outlook becomes. So far all the technicals we use are still holding bullish biases. Fundamentals, other than the geo-political support economic data is improving a little as reports now are not influenced by weather issues.
