|Microsoft, 3M, Caterpillar, Pfizer, DuPont, and P&G all reported lower earnings than were expected. The result, at 8:00 this morning the DJIA futures were down 250 points. Not only lower earnings but their outlook, at least Caterpillar, worried that there will be more weak earnings in this quarter as the Global economy continues to deteriorate; that may be a little too ominous but no matter how we look at it the only significant economy in the world is here. We have continued to warn the economic outlook isn’t close to being at levels that the media and Wall Street economists try to cram down investors’ throats. Tomorrow expect to get more of the feel good story when the FOMC releases its policy statement, be careful not to take it at face value.
More evidence that the economy isn’t as good as all of those bullish forecasts. Dec durable goods orders at 8:30 were expected to be up 0.3%, ex-transportation +0.5%; orders as reported declined 3.4% a massive miss for economists, excluding the volatile transportation orders down 0.8%. A measure of business investment–orders for nondefense capital goods, excluding aircraft–fell -0.6%. If Dec isn’t bad enough, Nov orders were revised from +0.9% to -2.1%, ex transportation revised from -0.4% to -1.3%. The December figures mark the longest streak of declines in orders for non-military capital goods excluding aircraft since the seven months ending in September 2012. These headline misses are some of the largest misses we have seen in years and will cause economists to revise their outlook for Q4 growth that will be reported on Friday. Prior to this report Q4 GDP advance report was thought to be up 3.0%, when we see it on Friday it will likely be less than that. One take away from this weak data, the US can’t stand alone forever as other global economies weaken.
Next up, at 9:00 Nov Case/Shiller 20 city home price index, expected +4.3% yr/yr from +4.5% yr/yr in October. As released, right on target, +4.3%. Still the yr/yr worsened from November. No reaction to the not so significant report. The home price index covering the entire U.S. rose 4.7% in the 12 months ended in November, according to the report. While that is up slightly from 4.6% in October, the trend has been steadily lower.
At 9:30 the DJIA opened down 231, NASDAQ -75, S&P -20; 10 yr note at 9:30 1.76% -6 bp and 30 yr MBS price +25 bps from yesterday’s close.
Two more significant data points at 10:00; Jan consumer confidence index, expected at 96.0 from 92.6——wait for it, the index jumped to 102.9 the highest level since Aug 2007. The jump has to be primed by the decline in gasoline s we won’t put too much emphasis on it. Dec new home sales were strong, up 11.6% from Nov against 2.9% expected to 481K, estimates were for 452K units. A big increase in the median sales price at $298,100 from $278.00 in Nov. There has been no noticeable market reaction to the better sales.
This afternoon at 1:00 Treasury will auction $26B of 2 yr notes, it should get a nice bid but two weeks ago the 3 yr auction didn’t meet expected demand.
Greece is still there and an important factor for the EU as well as the US if Europe worsens. The Prime Minister appointed his finance minister, a loud critic of harsh bailouts that have driven the economy even weaker. A signal that Greece’s Syriza-led coalition government will take a tough line in upcoming debt negotiations with international creditors. Today though focus will be on US data and tomorrow’s FOMC meeting policy statement. The consensus is the Fed will begin increasing interest rates by mid-year, we don’t see it that way. Likely the Fed will keep rates at current lows longer than what is presently believed. The US economy, while still growing, is slowing along with global markets. There is no inflation, deflation is the reality. Central banks are more and more seen as impotent with no more tools in the bag to right the ships faltering.
No change in our outlook for lower interest rates; all technicals are bullish.The 10 today at 1.76% is going to test 1.70% the intraday low on Friday Jan 16th. At these low levels there is going to be heightened volatility, it will take continued negative economic news to sustain and move rates lower. The US 10 is the best buy in the world for safety and the rate. German 10 yr bunds this morning at 0.34%. Us old dudes ( those of us that have been around since the mid-sixties) are having a difficult time with these low interest rates, never seen in the past 60 years.
- 10 yr note: +19/32 (59 bp) 1.76% -6 bp
- 5 yr note: +8/32 (25 bp) 1.29% -5 bp
- 2 Yr note: +1/32 (3 bp) 0.50% -1 bp
- 30 yr bond: +51/32 (159 bp) 2.34% -7 bp
- Libor Rates: 1 mo 0.167%; 3 mo 0.256%; 6 mo 0.353%; 1 yr 0.621%
- 30 yr FNMA 3.0 Feb: @9:30 102.84 +30 bp (+17 bp from 9:30 yesterday)
- 15 yr FNMA 3.0 Feb: @9:30 104.76 +8 bp (+3 bp from 9:30 yesterday)
- 30 yr GNMA 3.0 Feb: @9:30 103.34 +19 bp (+11 bp from 9:30 yesterday)
- Dollar/Yen: 117.44 -1.02 yen
- Dollar/Euro: $1.1386 +$0.0148
- Gold: $1287.50 +$8.10
- Crude Oil: $45.09 -$0.06
- DJIA: 17,409.59 -269.11
- NASDAQ: 4696.34 -75.42
- S&P 500: 2031.10 -25.99