Today's rate snapshot

A look at the latest market conditions and the current financial calendar

By MPA

07 Apr 2014

The stock indexes were following Friday’s sell-off early this morning with the three key indexes weaker. No change in the bond and mortgage in early activity. The stock market is in trouble and we expect the key indexes will continue to decline in the next couple of weeks. The indexes have been looking vulnerable for two weeks and now the outlook is increasingly bearish. The March employment report released last Friday was a good one, 192k new jobs and Jan and February revised to add another 37K jobs from what was originally reported. While not a barn burner report, nevertheless it did confirm jobs are improving. The report was in reality not encouraging however; just because there was an increase in job creations on the headline, the quality of new jobs remains poor with most in low wage areas and the labor participation rate at 62.3% implying many have simply quit.

Recent comments from Mario Draghi, ECB Pres. last week were worrisome; Draghi increasing he pessimism that he is growing more concerned the EU may be headed for deflation that will further hamper the very slow recovery. The Ukraine/Russian issues are causing the US to ramp up sanction threats that are not sitting well in Europe; increasing sanctions outlined by the Administration will not hurt the US much but could push the EU back into recession if tough sanctions are actually instituted. In Russia, its economy is declining; in China there is probably a five year supply of home and apartments, office building and shopping venues, growth is slowing.

After trading weaker early the DJIA opened +8, NASDAQ -17, S&P -3; 10 yr 2.71% -1 bp and 30 yr MBS price +13 bps from Friday’s close. By 9:45, 15 minutes into the trading the DJIA was off 63 points. The stock market is headed for a huge pullback in the weeks ahead, that will help keeping interest rates from increasing. Already this morning the 10 yr and MBS prices are gaining more momentum. This week is the beginning of Q1 earnings announcements, we expect many companies will report weaker earnings than Q4 2013. The CB talking negatively about the EU economy and increasing fears of deflation growing that will slow whatever minor growth the EU has. Janet Yellen warning that the employment data is, as we have mentioned numerous times, not strong as job growth is not producing higher wages. China weakening and dragging emerging markets down. Look for continued selling in the stock markets that will support interest rate markets. How much the soft stock market will aid interest rates isn’t clear yet, the key 10 yr so far not breaking its 10 bp rate trading range (2.80%-2.70%). Although we expect stock indexes will capitulate into a strong decline, there are still a large number of never die bullish investors that will see the initial declines as a buying opportunity, eventually they will be disappointed. Once that occurs the equity market will experience strong selling. Look for increased volatility in stocks this week.

This week there are few key economic releases, the FOMC minutes on Wednesday will get a lot of attention and the calendar is full of Fed regional presidents speaking. Treasury’s auctions will be more closely monitored in the face of the stock market decline; how strong the demand will add more to the outlook; strong bidding will increase the bearish view that is rapidly increasing in the equity markets.

This Week’s Calendar:
         Monday,
            11:45 am James Bullard St. Louis Fed
            3:00 pm Feb consumer credit (+$14.0B)
         Tuesday,
           10:00 am Feb JOLTS report (4.0 mil from 3.97 mil in Jan)
            1:00 pm $$30B 3 yr note auction
            1:30 pm Narayana Kocherlakota (Minn. Fed)
            2:45 pm Charles Plosser (Philly Fed)
        Wednesday,
            7:00 am MBA weekly mortgage applications
            10:00 am Feb wholesale inventories (+0.6%)
            1:00 pm $21B 10 yr note auction
            2:00 pm FOMC minutes from last meeting
            3:30 pm Charles Evans Chicago Fed.
       Thursday,
           8:30 am weekly claims (-8K to 318K)
                        March import and export prices (imports +0.2%, exports +0.3%)
           11:50 am Charles Evans Chicago Fed again
           1:00 pm $13B 30 yr bond auction
           2:00 pm March Treasury budget (-$132.8B)
       Friday,
           8:30 am March PPI (+0.1%, core +0.2%)
           9:55 am U. of Michigan consumer sentiment index (81.0 from 80.0 at the end of March)

RateSnapshot courtesy of TBWSratealert.com