Market commentary

Treasuries closed lower on Friday, and the bond market is closed today. The economic calendar is light the remainder of the week, except for Friday when we will see the Consumer Price Index and Retail Sales data for September. Also, remember the U.S. Treasury is auctioning 3 year notes, 10 year notes and 30 year bonds this week.

Market commentary

The U.S. economy lost 95,000 jobs last month versus the expectation of a loss of 5,000, reflecting the employment picture is weaker-than-expected Private payrolls were a bit better, increasing 64,000 in September (expected to be +75,000) and August’s figures were revised 27,000 higher. The pace of private job growth, however, has dropped from +117,000 in July to +93,000 in August to +64,000 in September. The government lost more jobs than expected; mostly census workers but some local and state government workers, and the unemployment rate remained unchanged at 9.6%.

According to a Bloomberg report, 41.8 million people in the U.S. are receiving food stamps, 13.5% of the population. Food stamps now account for 12% of all retail food and beverage sales, up from 6% three years ago. Mississippi, Tennessee, and Washington D.C. all have rates of use above 20%.

The bond market has improved slightly from the close on Thursday, and mortgage pricing is slightly better.

Remember, Monday is the Columbus Day holiday and will not count as a rescission day.

Market commentary

Initial jobless claims came in slightly better-than-expected at 445k this morning but remain in the 450k range that has come to define this recovery. Continuing claims rose slightly as unemployed persons find it difficult to obtain new work.
The growing consensus in the bond market is that more quantitative easing is imminent from the Fed, an idea clearly indicated in the rally we have seen in the 10 year note. Last Friday the 10 year closed at a yield of 2.51% and this morning is trading at 2.40%. A large part of this rally came after yesterday’s ADP report which pointed towards a weaker-than-expected payrolls report. Tomorrow’s payroll report is expected to reflect a slight loss of jobs in the overall economy, with a gain of 75,000 in private payrolls. The persistent weakness in the labor markets is very compelling to Fed policy makers, and this will be the last employment report before the Fed’s November meeting.
A couple of items to note: 1) We are coming up on a 3 day weekend, so volatility could be exaggerated after the early Friday morning release of the jobs data, and 2) next week the U.S. Treasury is auctioning an estimated $32 billion of 3 year notes, $21 billion of 10 year notes, and $13 billion of 30 year bonds.

Market commentary

Treasuries are in rally mode as the ADP employment report was released this morning showing a drop of 39k in jobs for the month of September. This report was expected to show an increase of 20k. In addition the Challenger job cuts report showed 37k job cuts announced in September, up 2.5k from July, most of which were seen in the West and Midwest.

The idea of the Fed implementing QE2 gained more traction yesterday when Chicago Fed Bank President Charles Evans said, "In the last several months I’ve stared at our unemployment forecast and come to the conclusion that it’s just not coming down nearly as quickly as it should.” He went on to say that he favors “much more [monetary] accommodation than we’ve put in place.”

Clearly today’s employment reports support the above statement from Chicago Fed President Evans, and the bond market is pricing in a weak number on Friday. Friday’s payroll data will need to be significantly worse than forecast for the bond market to maintain the rally. This could become a classic case of buy the rumor, sell the news.

Market commentary

Treasuries had a strong day yesterday and the 10-year is opening this morning at 2.45%, while the 2-year hit a new low and we are now sitting at 0.41%. Fed chairman Bernanke delivered comments yesterday that re-affirmed the market’s growing belief that he is leaning towards more quantitative easing. Answering a question about the effectiveness of additional QE at his speech yesterday in Rhode Island, Bernanke said “I do think that the additional purchases – although we don’t have precise numbers for how big the effects are – I do think they have the ability to ease financial conditions.” He also stated that it is “crucially important to put fiscal policy on a sustainable path” and that includes cutting our budget deficit. However, it would be more feasible to cut the deficit over the long-term than in the near-term. Translation: let’s stimulate the economy now and put in place some policies that will reduce the budget later.

Positive economic news came from the Institute for Supply Management as they reported their index of non- manufacturing businesses, which covers about 90 percent of the economy, rose to 53.2 from 51.5 in August.

The effect on the markets is a reversal for stocks as the DOW is currently higher by 120 points, while the bond market is flat from Monday’s close. Mortgage prices are slightly better, offering another good day to lock.

Market commentary

The bond market is "on alert for easing" according to this morning’s WSJ. As the FOMC (Fed) statements have said, consumer spending is being hindered by several variables but most importantly by the high rate of unemployment. This is why the labor statistics are so important at this juncture of the economic cycle. This week’s release of September’s non-farm payrolls will be the last payroll report before the November 2nd and 3rd Fed meeting. The recent jobless claims reports signal a slight improvement in the payroll data, but not enough improvement to change economists` perceptions of the strength of the labor market. Expectations are for total non-farm payrolls to improve from losing 54k jobs last in August to no jobs lost (no jobs gained) in September, while private payrolls are expected to increase from 67,000 to 77,000.
Helping bond prices today is the decline in U.S. stock markets, a result of analysts cutting the ratings on Microsoft and Alcoa. Mortgage prices have improved by approximately .250% from Friday.

Market commentary

Treasuries and mortgage bonds improved late Thursday afternoon and are flat this morning after absorbing a series of economic reports.

Manufacturing expanded in September at the slowest pace in 10 months, according to the Institute for Supply Management’s factory index which dropped to 54.4 from 56.3 in August.

Confidence among U.S. consumers declined less than forecast, as the Thomson Reuters/University of Michigan final index of consumer sentiment fell slightly to 68.2 from 68.9 in August.

Consumer spending in the U.S. rose more than forecast in August as incomes edged slightly higher. Wages and salaries increased 0.3% after a 0.4% increase the prior month, showing how the weak labor market is holding back paychecks.

All in all a mixed bag of reports indicating the U.S. economy is struggling to maintain positive growth.

Mortgage prices are better today by .125% to .250%.