US markets opened the way they ended yesterday; the stock market opening lower and interest rates slightly higher. Markets were roiled yesterday on Yellen’s remark that short term interest rates may begin to increase sooner than what market investors and traders were expecting. She may have stumbled when she said that once the Fed completed tapering it may begin raising interest rates within six months of ending monthly buying. She and the FOMC however remain concerned that the employment sector is still quite weak; she added a number of other tracking data would be added into the Fed’s analysis of employment and she doesn’t have much confidence on the unemployment percentage as the benchmark for determining Fed policy. Prior to the meeting and Yellen’s press conference investors and traders alike were not expecting any increase in the FF rate until late 2015. As is usual when the FOMC meets and the Chair holds a press conference, markets are left with more questions than answers. Although there has been nothing said about inflation concerns at the Fed since yesterday’s reaction to the policy statement and Janet Yellen’s press conference; we believe the Fed is increasingly concerned that the level of inflation has remained well under its 2.0% target (about 1.0% presently). Behind the headlines the Fed wants inflation up to its preferred target, and increasing interest rates, or suggesting it, will increase inflation more quickly. Although it is well off the radar now; Ukraine is pulling its troops and people from Crimea. The withdrawal implies Ukraine is conceding Russia will annex the country. Russia appears at the moment it has “won” its goal. The runoff however is not over, although the US and Europe don’t have much leverage there are a number of other issues that may become testy. The Iran nuclear talks and Syria are in play if the West continues to push Russia over the coming annexation of Crimea. For the moment, as we noted last week, the situation has cooled. France leapfrogged the U.S. as the top destination for the Russian central bank’s investments, dethroning America for the first time and underlining the challenge faced by Europe as it weighs sanctions over Ukraine. Weekly jobless claims at 8:30 were up 5K to 320K, a little better than 7K expecte4d but close enough. At 9:30 the DJIA opened -17, NASDAQ -4, S&P -1; 10 yr 2.78% +1 bp and 30 yr MBS price -8 bps from yesterday’s close (-73 bp). Feb existing home sales down 0.4% to 460K, right on forecasts; yr/yr -1.7%, 189K median sales price up 9.1% yr/yr (mostly on higher price home sales), 5.5 month supply based on current sales, NAR saying tight credit and affordability are dragging down sales. March Philadelphia Feed business index at +9.0 from -6.2 in Feb, better than 3.0 forecast. The demand for manufactured goods, as measured by the current new orders index, increased from -5.2 to 5.7 this month. Firms’ employment levels were reported near steady, but responses reflected optimism about adding to payrolls over the next six months. The surveys indicators of future activity reflected optimism about continued growth over the next six months. Feb leading economic indicators +0.5%, better than +0.3% estimates were calling for. a sign the world’s largest economy will strengthen after a weather-induced slowdown in the first quarter. The Conference Board’s gauge of the outlook for the next three to six months followed a 0.1 percent gain the prior month, the New York-based group said today. After starting weaker, the three data points at 10:00 turned the indexes higher but there was little change in the bond and mortgage markets. The driver for MBS markets, the 10 yr, is still holding a key chart point at 2.80% and continues in its 20 bp rate trading range since last January. A break above 2.80% will drive rates higher. US markets are momentarily shaken after Yellen’s comments yesterday. Expect continued volatility today and tomorrow.
Posted on: Thu, 20 Mar 2014 14:44:12 +0000
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