Market Analysis

The bond market improved slightly this afternoon on relief that the US Treasury's $42 billion 5 year auction was not a disaster.  While the auction at a 2.59 bid-to-cover ratio was lower than the 2.81 ratio for the November 5 year note auction, it was in line with the 2.63 ratio in October and avg ratios of 2.458 in the 3rd Qtr 2009, 2.25 ratio in the 2nd Qtr 2009 and 1.792 ratio in the 1st Qtr 2009. 

In other economic news today, the October Case Shiller Home Price Index came in very close to expectations with a year over year price decline for the 20 city index of 7.3%.  December's Conference Board's Consumer Confidence Index came in at 52.9 which was very close to the 53.0 expected result.

The bond market continued to deteriorate today as investors adjust expectations for higher interest rates in 2010.

Below is a recap of the economic calendar for this week:

Monday, December 28, 2009

US Treasury auctions $44 billion in 2 year notes - Demand for the auction was slightly weaker than had been anticipated with a bid-to-cover ratio of 2.91 vs November's 3.16 ratio.

Tuesday, December 29, 2009

October Case Shiller Home Price Index - expected to show continued monthly improvement with year over year prices down 7.1% compared to 9.36% in September.

December Conference Board's Consumer Confidence Index - expected to increase from 49.5 to 53.0

US Treasury auctions $42 billion in 5 year notes.

Wednesday, December 30, 2009

December Chicago PMI (survey of business conditions in the Chicago area) - expected to come in at 55.1, slightly worse than November's 56.1.

Thursday, December 31, 2009

Initial Jobless Claims week ended 12/26/09 - expected up by 8,000 to 460,000 up from 452,000 from the prior week.

Continuing Jobless Claims week ended 12/26/09 - expected up by 24,000 to 5.1 million up from 5,076,000 the prior week.

Friday, January 1, 2010

Economic calendar vacant.

The bond market opened better this morning but has been moving back towards par during the day.  The stock market is relatively flat despite economic data that was below expectations.

In economic news, Personal Incomes rose .4% wich was slightly less than the .5% expected.  Personal Spending increased .5% vs expectations of .6% to .7% increase.  The Core PCE Index increased 0% vs expectations of a .1% increase.  December Consumer Sentiment came in at 72.5 vs expectations of 73.5.  November New Home Sales dropped 11% vs expecations of a 2.1% increase.

Bonds opened down this morning and have deteriorated further as morning trading progressed (lower bond prices translate into higher rates).  The 10 Year US Treasury bond yield is up to 3.65%.  Stocks are up today, with the Dow up over 100 pts to the 10,400 level.  No economic data was released today.  Bonds appear to be responding to the stock market and to technical indicators which have been pointing for several weeks now to higher rates ahead.

Below is a recap of the economic calendar for this week:

Monday, December 21, 2009

Economic Calendar is Vacant

Tuesday, December 22, 2009

Final Estimate Q3 Gross Domestic Product - expected up 2.7% compared to last estimate of a 2.8% increase.

Nov. Existing Home Sales - expected up 2.4% vs last month up 10.1%.

Wednesday, December 23, 2009

Nov. Personal Income, Spending and Core PCE Index  - Income expected up .5% vs last month up .2%.  Spending expected up .7% vs last month up .7%.  Core PCE Index (a measure of inflation) expected up .1% vs last month up .2%.

December Reuter's/Univ of Michigan Consumer Sentiment Index - expected 73.5 vs 73.4 initial estimate.

Nov. New Home Sales - expected up 2.1% vs last month up 6.2%.

Thursday, December 24, 2009

Initial weekly jobless claims for the week ended 12/19 - expected down by 10,000

Nov. Durable Goods Orders - expected up 0.5% vs. last mont down 0.6%.

Friday, December 25, 2009

Xmas - Economic Calendar Vacant

Despite economic reports that were better than expected, bonds are benefiting from selling in the the stock market.  Stock market investors appear to have been "spooked" by the Federal Reserve Meeting statement yesterday that pointed to continued weak economic conditions in 2010. 

In economic news, Initial Weekly Jobless claimsfr the week ended Dec 12 rose by 7,000, which was less than the 9,000 expected.  The November index of leading economic indicators, from the Conference Board, rose 0.9%, beating expectations of a 0.7% jump.  The Philadelphia Fed index, a regional read on manufacturing, jumped to 20.4 in December, the highest since April 2005, from 16.7 in November. Analysts had predicted a decline to 16.5.

The bond market experienced heavy selling in the morning as a result of higher than expected wholesale inflation data and better than expected production data.  The selling abated somewhat during the afternoon, however as investors digested a very weak manufacturing report for the New York region.  Mortgage rates moved up approx .125% today as a result of the early morning deterioration.

In economic news, November's Producer Price Index (PPI) was up 1.8% (vs expecations of a 1% increase) and the core rate, excluding food and energy was up .5% (vs expectations of a .3% increase).  November Industrial Production was up 1.8% (vs expecations of a .6% increase) and Capacity Utilization was 71.3% (vs expectations of 71.2%). The Empire State Manufacturing Index, however, came in way below expectations at a reading of 2.55 (vs expectations of a 25.0 reading). 

The bond market is flat this morning.  This week could produce more volatility though as investors await the post-meeting statement Federal Reserve on Wednesday (their last meeting for 2009) and digest housing starts numbers on Wednesday and weekly initial jobless claims on Thursday.   Below is a recap of the economic calendar for this week:

Monday, December 14, 2009

No economic reports released

Tuesday, December 15, 2009

Nov. Producer Price Index - expected up 1.0% vs Oct up .3%.  Core rate, excluding food and energy, expected up .2% vs Oct down .6%.

Nov. Industrial Production &  Capacity Utilization - production expected up .6% vs .1% increase in Oct and capacity utilization expected up to 71.2% vs 70.7% in Oct.

Dec. Empire State Manufacturing Survey - expected 25.0 Index vs 23.51 in November.

Wednesday, December 16, 2009

Nov. Consumer Price Index - expected up .4% vs Oct up .3%.  Core rate, excluding food and energy, expected up .1% vs Oct up .2%.

Nov. Housing Starts & Building Permits - starts expected up 9.6% (compared to an Oct number that had fallen more than expected) and permits expected up 3.4%.

Fed releases post-meeting statement - analysts will be looking for direction on short term rates and also any hints regarding the Federal Reserve's mortgage-backed security purchase program which is set to expire in March 2010.  If the Fed modifies their "extended period" language for the time period during which short term rates will be at or near 0%, then rates would most likely move up.

Thursday, December 17, 2009

Initial weekly jobless claims - expected down 9,000 vs last week up 17,000.

Nov. Leading Indicators - expected up .7% vs Oct up .3%

Dec Philadelphia Fed Survey - index expected to be 16.5 vs Oct 16.7.

Friday, December 18, 2009

No economic reports released

Bond markets are improving this morning after a 5 day losing streak last week. Analysts are still trying to understand the impact of Friday’s surprise November Non-Farm Payroll report which showed that only 11,000 jobs were lost in November (vs expectations of 130,000 jobs lost). In addition, the Labor Dept reported that they had overstated job losses in September and October by 159,000. These lower job losses are also accompanied by higher temporary agency hiring. Temp help agencies added 52,000 jobs in November vs 40,000 in October. Tem agency hiring is considered a leading indicator for a better jobs market as companies tend to increase their reliance on temp agencies prior to adding permanent headcount.

The economic calendar is light this week. Below is a recap of this week’s economic calendar:

Monday, December 07, 2009

October Consumer Credit Outstanding – expected to drop by $8.8 billion after a $14.8 billion drop in September.

Tuesday, December 08, 2009

Treasury Dept auctions $40 billion of 3-year notes – investor demand for this auction is expected to be strong due to short duration of these notes.

Wednesday, December 09, 2009

Treasury Dept auctions $21 billion of 10-year notes – the results of this auction will be watched more closely as a gauge of continued investor appetite for longer term US debt at current rates.

Thursday, December 10, 2009

Initial jobless claims for the week ended 12/5/09 – expected up by 3,000.

Treasury Dept auctions $13 billion of 30-year bonds – the results of this auction will be also be watched very closely as a gauge of continued investor appetite for longer term US debt at current rates.

Friday, December 11, 2009

November Retail Sales – expected up .9% vs last month up 1.4%. Excluding autos expected up .5% vs last month up .2%. A strong # on this report would be expected to put upward pressure on mortgage rates.

The Reuter's/University of Michigan's Consumer sentiment index – expected up to 68.2 compared to 67.4 for November.

The bond market deteriorated today (lower prices, slightly higher yields/rates) on comments by as the stock market moved forward on better than expected October pending home sales report which was up by 3.7% vs expectations of a .3% decline. The October pending home sales figure reflects transactions that will close after the expected expiration (which has not been extended) of the first time home buyer credit. Also, equity investors shrugged off concerns about issues with Dubai’s sovereign fund and moved up to a new 14 month high for the Dow and to near 14 month highs for the S&P 500 and the Nasdaq.

In economic news, the Institute of Supply Management (ISM) manufacturing index for November was 53.6, lower than expectations of 55.0. Construction spending in October was unchanged which was better than expectations for a .4% decline. On a year-over-year comparison, construction spending is down 14.4% compared to 2008. Also, Philadelphia Federal Reserve Bank President Charles Plosser made statements following a speech that indicated he did not believe the Fed should extend its mortgage-backed security mortgage program set to expire in March 2010.