Rate snapshot: Stock indexes open better, inflation data coming Wednesday

U.S. stock indexes opened a little better this morning, and economists are looking for stronger inflation numbers

By MPA

28 Apr 2014

US stock indexes opened a little better in pre-open trading, the rate markets a little softer early on the better stock market outlook today. This week has a lot of key market data, and the FOMC meeting concluding Wednesday with the usual policy statement and April employment data. Those are the headlines but through the week there a number of other key reports (see calendar).

Not a lot new in Ukraine; the US extending more sanctions on key people in the power base in Russia, and talks continuing for more sanctions but Europe still resisting some serious sanctions because of fears anything more draconian will hurt the economy in Europe as well. The U.S. will impose new sanctions today on seven more individuals and 17 companies close to Russian leader Vladimir Putin following his government’s lack of progress in easing the crisis in Ukraine, President Obama said. Sanctions will focus on companies and individuals identified by U.S. and European Union officials as having close ties to Putin and won’t include the broad banking sector.

The ECB awaiting the most recent inflation data coming on Wednesday; Mario Draghi has made a huge point recently that the ECB is increasingly worried that deflation may be increasing to infect the European economies. Economists in a Bloomberg News survey predict consumer prices rose 0.8% this month from a year ago, compared with 0.5% in March. If a weak inflation number hits there will be increasing calls for Draghi to impose negative interest rates for the first time or pushing forward with plans for quantitative easing. Price gains have been below 1 percent since October, compared with the ECB’s goal of just under 2 percent, and March’s figure was the weakest in more than four years. Kind of like the Fed; there is a number of thoughts from various ECB members as to what course of action should be taken if inflation doesn’t show some improvement. Why does it matter? Because any additional stimulus from the ECB will be seen as increasing concerns of deflation will feed into US thinking as our inflation level is well under what the Fed wants. Remember, US bond and mortgage markets are intertwined with global events.

The DJIA opened +95 after falling 140 on Friday; NASDAQ +19, S&P +8. 10 yr at 9:30 2.68% +1 bp and 30 yr MBS price -2 bp from Friday’s close.

The only scheduled release today; NAR’s March pending home sales (contracts signed but not yet closed) expected at +0.6% after falling 0.8% in Feb, for once a good reading; sales increased 3.4% the biggest jump month-to-month in nine months. NAR saying the weather has improved. This is one of the few positive reports over the last three months for the housing sector. MBS prices declined after the report was released.

The bond and mortgage markets remain in their tight ranges this morning and with employment and Q1 GDP this week will likely stay well contained. Treasury rates are experiencing safe haven buying over Ukraine and with no inflation hedge funds and investors are willing to hold treasuries now with geo-political worries and continuing concerns that the US stock market is vulnerable to a sustained sell-off. So far the stock market is holding but not sustaining any significant improvements. Emerging markets are slowing, China’s exports declining, US job creations are not living wage jobs, and the ECB MAY have to increase stimulus if its level of inflation remains soft. While rates are low now and those bets that rates would by now be increasing are forcing a lot of short positions to be closed out. It is difficult to build much of a case for much lower rates unless war breaks out in Ukraine and Russia, also difficult to build the other case of increasing rates with the economy still precarious at best.

Expect interday volatility to remain through the week with MBS and treasury prices remaining in their respective narrow ranges until Friday’s April employment report. We will start the week continuing our float recommendations.

This Week’s Calendar:
         Monday,
           10:00 am Mar pending home sales (+0.6%) as reported
        Tuesday,
            9:00 am Feb Case/Shiller home price index (+13% yr/yr)
           10:00 am Apr consumer confidence index (83.0 from 82.3 in Feb)
        Wednesday,
           7:00 am MBA weekly apps
           8:15 am ADP Apr private jobs (+210K)
           8:30 am Q1 preliminary GDP (+1.1% from +2.6% in Q4; PCE +1 7%)
                        Q1 employment cost index (+0.5%)
           9:45 am Chicago Purchasing Mgrs. index (56.9 from 55.9 in Mach)
           2:00 FOMC policy statement
       Thursday,
           8:30 weekly jobless claims (320K -9K)
                 March personal income and spending (income +0.4%, spending +0.6%)
                  March PCE (+0.2%, +0.1% in Feb)
         10:00 Apr ISM manufacturing index (54.3 from 53.7% in March)
                   March construction spending (+0.6%, +0.1% in Feb)
           No Time April auto and truck sales (12.7 mil from 13.0 mil in March)
      Friday,
           8:30 am April employment data (unemployment 6.6% from 6.7%; non-farm payrolls +215K; private jobs +213K; avg hrly earns. +0.2%)
           10:00 am March factory orders (+1.4%)

RateSnapshot courtesy of TBWSratealert.com