|Yesterday the stock market got tagged hard, this morning a little rebound in early activity. Earnings announced yesterday morning from large companies that derive revenue from global sales (Microsoft, 3M, Caterpillar, Pfizer, DuPont, and P&G) started an avalanche of selling taking the DJIA down 291 and NASDQ -90. The weaker earnings and forward guidance lit a fire that kept burning all day. The issue, the dollar’s strength is hurting exports. By the end of the session yesterday another fear factor for the economy was put on the table after weaker earnings that businesses that garner income from foreign sales have to begin cutting costs to offset the increasing dollar; cutting costs will mean cutting jobs, or at least that definitely is on the table and not good news for the Federal Reserve.
This afternoon are 2:00 the FOMC meeting will conclude with the usual policy statement. how will the statement frame the Fed’s plans to begin increasing interest rates. After the Dec meeting and Yellen’s press conference the general consensus was that by mid-year the FF rate would begin to increase. There was little doubt in the markets that rates would lift off at mid-year. Since then there is an increasing thought in markets that with Europe teetering on recession and possible disruption for the EU with Greece’s elections, slowing in China and here in the US some recent data not supporting the growth view. Yesterday Dec durable goods unexpectedly declined against consensus belief that orders increased and Nov durable goods orders also weaker than originally reported. Dec retail sales reported two weeks ago unexpectedly declined and November retail sales revised lower than originally reported. Export and import prices are sliding, additional evidence that there is no pricing power in the US or certainly deflation is increasing in Europe and China facing increasing debt problems. These are warning signs that US growth may slow; not totally convincing, but should be enough to keep the Fed from acting prematurely.
The weekly MBA mortgage applications were down last week; the apps down 3.2% after jumping 14.2% in the previous week. Refinance apps down 5.0% after increasing 22.0% the previous week. Purchase apps -0.1%. the week before -3.0%. Low rates sparking re-finance but purchase apps not so good in the last couple of weeks even with these very low mortgage rates.
This afternoon at 1:00 Treasury will auction $26B of 2 yr notes, the auction was delayed a day due to bad weather in the east.
At 9:30 the DJIA opened +63, NASDAQ +56, S&P +13. The 10 at 9:30 1.81% unch, 30 yr MBS price +8 bps from yesterday’s close but down 16 bps from 9:30 yesterday.
No letup in the volatility in financial markets; the equity market presently assessing the global economic weakness and strength of the dollar’s impact on US growth.
We remain bullish for interest rates expecting lower rates. At these levels though we also expect increasing volatility. Markets should be relatively peaceful now until 2:00 when the FOMC releases the policy statement.
- 10 yr note: +7/32 (22 bp) 1.80% -1 bp
- 5 yr note: +3/32 (9 bp) 1.32% -2 bp
- 2 Yr note: unch 0.51% unch
- 30 yr bond: +20/32 (63 bp) 2.38% -3 bp
- Libor Rates: 1 mo 0.169%; 3 mo 0.256%; 6 mo 0.355% 1 yr 0.621%
- 30 yr FNMA 3.0 Feb: @9:30 102.69 +8 bp (-16 bp from 9:30 yesterday)
- 15 yr FNMA 3.0 Feb: @9:30 104.75 +6 bp (-1 bp from 9:30 yesterday)
- 30 yr GNMA 3.0 Feb: @9:30 103.09 +11 bp (-25 bp from 9:30 yesterday)
- Dollar/Yen: 117.72 -0.15 yen
- Dollar/Euro: $1.1344 -$0.0037
- Gold: $1285.50 -$6.20
- Crude Oil: $45.15 -$1.08
- DJIA: 17,460.52 +73.31
- NASDAQ: 4725.74 +44.25
- S&P 500: 2039.71 +10.16