In early trading, prior to 8:30, the 10yr remained unchanged, MBS prices +5 bp and the US stock indexes slightly weaker. Dec housing starts and permits at 8:30; starts were expected to have declined 9.2% to 986K units, permits up 0.8% at 1.00 mil. Starts were reported down 9.8% while permits a little lower, -3.0%. In terms of numbers starts were better than 986K expected at 999K after November starts were revised higher to 1.11 mil. Applications for building permits were lower to a 986,000 pace in December, less than the projected 1.00 million. For all of 2013, builders began work on 923,400 homes, up 18.3% from the prior year and the most since 2007’s 1.36 million. Work on single-family houses fell 7% to a 667,000 rate in December from 717,000 the prior month. Construction of multifamily projects such as condominiums and apartment buildings declined 14.9% to an annual rate of 332,000. Weather played a significant role in Dec, the coldest since 2009 and snow fall 21% above normal according to weather people. There was no significant reaction to the housing data. 9:15; Dec industrial production and capacity utilization; production excepted up 0.3%, as reported up 0.3%. Capacity utilization was thought to be at 79.1% from 79.0% in Nov, as reported 79.2% the highest use of factories since May 2008. Production now up for 5 months in a row indicating manufacturing is increasing and adding to the outlook of continued economic growth. Industrial output rose at a 6.8% annual rate in the final three months of last year, the most since the second quarter of 2010. Manufacturing, which makes up 75% of total production, advanced 0.4% in December after a 0.6% gain in November. Strong Q4 production, a huge increase in inventories and strong auto sales will drive Q4 GDP up at least 4.0%. The data put a kink in the bond and mortgage markets; prior to 9:15 the 10 at 2.84%, after the report at 2.85%, MBS prices held the earlier gains. 9:30 the stock market opened a little weaker, the DJIA -20, NASDAQ -8, S&P -2; 10 yr at 2.85% unchanged and 30 yr MBS price +4 bps. The lower opening in the indexes didn’t last, within five minutes the indexes were trading positive (see below for 10:15 levels) 9:55 the Jan mid-month U. of Michigan consumer sentiment index, expected at 83.5 from Dec final 82.5; the index fell to 80.4. It is a mid-month report nevertheless it slipped. We don’t put as much significance in the sentiment index from one read, it is an emotional measurement of how consumers are thinking at the moment of the survey. Christmas slump and no strong stock market. Markets do take a little more interest, there was no reaction to the report though. At 10:00 Nov JOLTS job openings expected at 3.93 mil from 3.925 mil in Oct; more jobs out there than thought, the number reported 4.001 mil. Traders don’t pay much attention to the report however. The JOLTS report defines Job Openings as all positions that are open (not filled) on the last business day of the month. A job is open only if it meets all three of the following conditions: * A specific position exists and there is work available for that position. The position can be full-time or part-time, and it can be permanent, short-term, or seasonal, and * The job could start within 30 days, whether or not the establishment finds a suitable candidate during that time, and * There is active recruiting for workers from outside the establishment location that has the opening. At 12:30 Jeffery Lacker, Richmond Fed Pres. will be speaking on the economy in Richmond. Lacker has been one of the proponents of the Fed easing back on monetary support. For all the bearish talk about interest rates on economic improvement and the Fed withdrawing from the monthly purchases; the technical picture now is slightly bullish. In other words, the talk is not matching the actual trading at least at the moment. Interest rates are going to increase this year but at the moment both treasuries and MBS markets are looking better The driver 10 yr however will find solid resistance at 2.80%. We do not believe rates have much improvement left; that said we will continue to float based on the price patterns and strength measurements. A strong word of caution; although the very near term is holding nicely and we will go with it, it is best to make preparations to lock in deals at a moment’s notice. The underlying fundamentals are not conducive to lower interest rates. Lower rates now are dependent on the movement in the stock market; weaker stocks will support the fixed income markets.
Posted on: Fri, 17 Jan 2014 15:31:16 +0000
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