|The bond and mortgage markets opened flat this morning after a generally flat day yesterday US stock indexes in very early activity this morning were better, also after a generally quiet session yesterday. Yesterday Feb existing home sales were slightly weaker than forecasts, +1.2% against +3.4% expected.
At 8:30 Feb CPI expected up 0.2% was right on, the core was expected +0.1%, as reported +0.2%. No inflation to worry about now that the Fed has stated in its forecasts that the 2.0% inflation target won’t likely be achieved until the end of 2016. Yr/yr core reported this morning, up 1.7% but that isn’t the inflation reading the Fed likes to follow; the personal consumption expenditures reported with GDP data is the more important evidence on inflation. The advance in core prices was broad-based. Owners-equivalent rent, one of the categories designed to track rental prices, increased 0.2% in February. Costs for used and new automobiles, airline fares and clothing all increased. Men’s apparel showed the biggest gain on record. One source of weakness was the cost of medical-care services, which dropped for the first time since 1975. After the report there was initial chatter that prices are increasing and moving closer to the Fed’s target; we don’t agree with that sentiment or outlook. Making assumptions on an increase of 0.1% over what was thought seems a stretch. UK inflation at zero frm +0.3% in Jan; the first zero reading since comparable records began in 1989. Based on constructed historical data, it’s the weakest since 1960, the Office for National Statistics said on Tuesday.
In Europe the economy is improving, most coming frm Germany. This morning a Purchasing Managers Index for both the manufacturing and services sector across the region came in at the highest reading since May 2011. The euro climbed to as high as $1.10 in this morning’s session. From China manufacturing slipped to an 11-month low in March. The preliminary Purchasing Managers’ Index came in at just 49.2, a drop from the previous month and below the median estimate of 50.5.
At 9:00 the Jan FHFA home price index, expected up 0.5%, as released +0.3%; yr/yr +5.1% down frm +5.4% in Dec. No reaction but the decline in yr/yr and the month is interesting compared to yesterday’s Feb existing home sales that saw yr/yr prices increase 7.5%.
At 9:30 the DJIA opened -10, NASDAQ +3, S&P -1. 10 yr 1.91% unch and 30 yr MBS price -2 bps frm yesterday’s close and -3 bps frm 9:30 yesterday. Starting very quiet so far this morning ahead of Feb new home sales at 10:00. MBS prices so far this morning have been up as much as 13 bps in a very thin MBS market.
At 10:00 Feb new home sales; markets were expecting sales to be down 3.9% to 462K annualized units. As reported sales exploded, up 7.8% to 539K units the strongest since Apr 2008. 4.7 months’ supply at the present sales rate; yr/yr the median sales price $275,500 up 4.0% yr/yr. One of the strongest housing reports we have had recently, especially compared to the consensus estimate.
Also at 10:00 the March Richmond Fed index was expected at +2, as reported down 8.
At 1:00 this afternoon Treasury will auction $26B of 2 yr notes.
The bond and mortgage markets remain bullish based on all of our technical analysis. I could easily make the case for higher interest rates based on what data I would use to justify it; equally I could make the other case for lower rates that comparatively would balance the two positions. As we always advise, don’t make short term decisions based on interpreting momentary fundamental data, look totally to how markets are acting (technicals). The wider outlook does have to include the fundamental data as well as technical studies.
PRICES @ 10:10 AM
10 yr note: +2/32 (6 bp) 1.91% unch
5 yr note: unch 1.39% unch
2 Yr note: unch 0.58% unch
30 yr bond: +14/32 (44 bp) 2.49% -2 bp
Libor Rates: 1 mo 0.173%; 3 mo 0.264%; 6 mo 0.393%; 1 yr .686%
30 yr FNMA 3.0 Apr: @9:30 102.20 -2 bp (-3 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Apr: @9:30 104.67 -1 bp (+7 bp frm 9:30 yesterday)
30 yr GNMA 3.0 Apr: @9:30 102.97 +2 bp (+8 bp frm 9:30 yesterday)
Dollar/Yen: 119.36 -0.10 yen
Dollar/Euro: $1.0923 -$0.0023 ( the euro touched $1.10 earlier and so far has held it; recent low $1.05)
Gold: $1191.70 +$4.00
Crude Oil: $47.82 +$0.37 ( recent low price $43.00, since then the price has increased in the last week)
DJIA: 18,119.11 +3.07
NASDAQ: 5020.73 +9.76
S&P 500: 2104.86 +0.44