Market Analysis

Posted by on Dec 29, 2014 in News | No Comments

Treasuries and MBSs starting better this morning with US stock indexes slightly lower prior to the 9:30 open. There are no economic reports today; trading should continue to be light on low volume. Greece back in the headlines this morning after the Parliament failed to elect a president, meaning Greece will be forced into snap elections—a prospect that has renewed fears over the country’s financial problems. Greek stocks fell and took the rest of Europe with it, on very low volume though.

This week, like last week will be trading on light volume; the bond market will close at 2:00 pm on Wednesday; stocks will trade all day Wednesday and both will trade all day on Friday.

With the New Year about to begin bond market forecasters are once again “sure” interest rates will increase. The Fed is going to begin increasing rates next year; the consensus now is mid-year. If the Fed does move to increase rates it will be the first rate increase by the Fed in 10 years. The argument is that rates don’t have any way to go but higher. This time last year it was the same view as 2014 began; the overwhelming consensus was that interest rates would begin to increase. The difference between then and now is that at the beginning of 2014 the 10 yr note was trading at 3.00%, now 2.22%.

Crude oil is a little higher this morning on fighting that has re-erupted in Libya; nothing significant however, crude has been hanging around $55 to $54 for the last few sessions. The German 10 yr Bund made another new all-time low at 0.56%, the Greek failed election roiling all Europe’s markets today. The prospect of renewed Greek turmoil is reviving memories of the euro-area debt crisis, which started in the southern European nation in 2009 and spread until it threatened the survival of the single currency in 2012.

This week’s Economic Calendar:

Tuesday,
9:00 am Oct Case/Shiller 20 city index (yr/yr +4.5% from 4.9% in Sept.
10:00 am Dec consumer confidence index from Conference Board (93.0 from 88.7)

Wednesday,
7:00 am weekly MBA mortgage applications
8:30 weekly jobless claims (+6K to 286K)
9:45 am Dec Chicago purchasing mgrs., index (60.8, unch from Nov)
10:00 am Nov pending home sales (+0.5%)
2:00 pm Bond and Mortgage markets close early

Thursday,
Happy New Year

Friday,
10:00 am Dec ISM manufacturing index (57.5 from 58.7)
Nov construction spending (+0.5%)

Better this morning in the MBS and treasury markets on the Greek election debacle but our models are still slightly bearish. With trading volume thin this week we don’t like floating. I apologize for the brevity of the commentary this morning; a little touch of the flu to start the week, blah.

PRICES @ 10:00 AM

10 yr note: +10/32 (31 bp) 2.22% -3 bp
5 yr note: +6/32 (18 bp) 1.72% -4 bp
2 Yr note: +2/32 (6 bp) 0.71% -4 bp
30 yr bond: +25/32 (78 bp) 2.78% -3 bp
Libor Rates: 1 mo 0.168%; 3 mo 0.256%; 6 mo 0.357%; 1 yr 0.628%
30 yr FNMA 3.5 Jan: @9:30 104.03 +8 bp (+19 bp from 9:30 Friday)
15 yr FNMA 3.0 Jan: @9:30 103.70 +8 bp (+5 bp from 9:30 Friday)
30 yr GNMA 3.5 Jan: @9:30 104.68 +16 bp (+14 bp from 9:30 Friday)
Dollar/Yen: 120.65 +0.34 yen
Dollar/Euro: $1.2193 +$0.0010
Gold: $1190.60 -$4.70
Crude Oil: $55.13 +$0.40
DJIA: 18,065.25 +11.54
NASDAQ: 4805.51 -1.35
S&P 500: 2091.85 +3.08

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