|Early this morning (8:00 am) the 10 yr at 2.05% +5 bp from yesterday’s close. At 8:30 two key data points; weekly jobless claims were up 25K to 304K, forecasts for an increase of 10K. The four-week average of claims, a less-volatile measure than the weekly figure, declined to 289,750 from 293,000 in the prior week. Jan retail sales, expected down 0.5% for the overall and -0.5% excluding auto sales; sales declined 0.8% and ex autos -0.9%. The reaction to the two weaker reports pushed the 10 yr note back to unchanged at 2.00% and 30 yr MBS price up 8 bps. The weaker sales and higher weekly claims didn’t faze the stock indexes, the three key indexes were better prior to 8:30 and continued to increase after the data.
Dec retail sales were weak, down 0.9%, now January soft down 0.8%. The last increase in sales occurred last Nov. Soft holiday sales and now Jan sales disappoint but so far this morning equity markets haven’t reacted. At 9:00 the DJIA futures +45, S&P +8, NASDAQ -2. The 10 at 9:00 2.00%. Excluding autos, sales fell 0.9% in January after an identical December decline. Excluding both gas and autos, sales rose 0.2% in January after being unchanged in Dec. Yr/yr sales up 3.3%. Retail sales data can be volatile from month to month. January’s 0.8% decline came with a 0.5 percentage point margin of error. Service station sales with low gas prices fell 9.3% in Jan from Dec.
Russia and Ukraine with France and Germany negotiating a deal to end Ukraine’s 10-month conflict with Russia-backed separatists, reviving and amending a failed September truce agreement in marathon talks that lasted through the night. Europe’s stock markets rallied on relief that additional sanctions may not be necessary. Europe took the full force of the sanctions that caused its markets to weaken and the economic outlook to be revised lower. The texts of the documents approved showed concessions on both sides, although Russia’s tough negotiating appeared to have won significant gains for the rebels. (WSJ). A baby step forward but it doesn’t appear anything concrete emerged. The outlook for a real cease fire doesn’t look likely, news reports saying pro-Russian separatists rejected the accord. Markets are not as interested in the situation as months ago when the fear of a cold war was in minds of investors.
The Greek debt crisis meeting didn’t end with any significant agreement. Eurozone finance ministers struggled to find a clear line on how to deal with Greece’s financial issues. The International Monetary Fund and the European Central Bank pledged to keep talking in the coming days with the hope of coming up with a plan at their next meeting. Greek Finance Minister said he still hoped that a deal on new financing for his debt-stricken country could be found by next week.
At 9:30 the DJIA opened +24, NASDAQ +30, S&P +8. 10 yr note 1.99% -1 bp and 30 yr MBS price +9 bps.
At 10:00 Dec business inventories, expected up 0.2%, were up 0.1%. Business inventories have a direct effect on GDP data; Q4 GDP is likely to be less growth than many were thinking. The last time we had two consecutive months of inventories increasing just 0.1% was back in May 2013.
At 1:00 pm Treasury will auction $16B of a new 30 yr bond, yesterday’s 10 yr auction was OK, abut in line with recent 10 auctions.
From time to time we get e-mails questioning why we spend so much time reporting on markets around the world, after all the e-mails say, this is the US, why do we need to care about what is occurring in Europe China and other industrial counties. The answer is direct and simple; what happens in Europe and the rest of the world does have an impact on our markets. In the absence of domestic news the global concerns carry a lot of weight with traders and investors. This morning’s domestic weakness in retail sales and the increase in claims didn’t hurt stock indexes so far today, Europe’s markets slightly better supporting our markets until later when Europe markets close.
The US interest rate markets remain bearish, both fundamentally and technically. The 10 at 1.99% is 5 bps lower than earlier today, MBS prices a little better. US stocks also better so far, shrugging off the weak retail sales in the last two months. 70% of GDP comes from the consumer; I am surprised the equity markets ignored the data.
PRICES AT 10:10 AM
10 yr note: 1.99% -1 bp frm yesterday’s auction
5 yr note +5/32 (15 bp) 1.51% -2 bp
2 Yr note: +3/32 (9 bp) 0.63% -4 bp
30 yr bond: +14/32 (44 bp) 2.57% -2 bp
Libor Rates: 1 mo 0.171%; 3 mo 0.258%; 6 mo 0.376%; 1 yr 0.663%
30 yr FNMA 3.0 Mar: @9:30 101.67 +9 bp (+1 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 104.71 -1 bp (-14 bp frm 9:30 yesterday)
30 yr GNMA 3.0: @9:30 102.61 +9 bp (-2 bp frm 9:30 yesterday)
Dollar/Yen: 119.13 -1.33 yen
Dollar/Euro: $1.1385 +$0.0049
Gold: $1226.00 +$6.40
Crude Oil: $51.07 +2.23
DJIA: 17,933.20 +71.06
NASDAQ: 4839.06 +37.88
S&P 500: 2082.29 +13.76