U.S. stocks are higher this morning after a strong earnings report from Alcoa gave a good start to the Q4 earnings season. Global markets continue to focus on the European sovereign debt problems which do not seem to be going away anytime soon. China and Japan were out in support of buying European financial aid debt, but one has to wonder how long this can go on. In reality it is the taxpayers of Germany and France that end up paying for these bailouts. If this were in the U.S. it would be similar to California asking Texas to help pay for California’s spendthrift ways.
Bond prices are faltering today with mortgages approximately .25% worse in price from the close on Monday. Later today the U.S. Treasury will auction $32 billion of 3 year notes so stay tuned, we could see additional volatility if demand is weak.
And finally, the U.S. Federal Reserve made a record profit last year of $80.9 billion, sending $78.4 billion to Treasury. The Fed’s 2010 interest expense was just $2.7 billion while operating expenses were $4.3 billion. This seems like a no-brainer business; create money out of thin air, buy bonds and collect the interest.
Tuesday, January 11, 2011
Monday, January 10, 2011
Market commentary
Today is a fairly quiet Monday morning in the bond market with no economic data on this morning’s calendar, but plenty of data will be forthcoming this week. Economic reports including Retail Sales and the Producer Price Index, in addition to auctions of 3 year, 10 year and 30 debt by the U.S. Treasury should make for continued volatility this week.
Last week, the first trading week of 2011, saw the resumption of volatility with the yield on the 10 year note trading as high as 3.49% and a low yield of 3.26%, closing the week at 3.30%. This morning we see a slight improvement in bonds with the yield on the 10 year note falling to 3.285%.
Europe is back in the news this morning as the European Central Bank is temporarily buying Portuguese debt in efforts to support that country as they enter the market this week for additional sales of their sovereign debt.
Last week, the first trading week of 2011, saw the resumption of volatility with the yield on the 10 year note trading as high as 3.49% and a low yield of 3.26%, closing the week at 3.30%. This morning we see a slight improvement in bonds with the yield on the 10 year note falling to 3.285%.
Europe is back in the news this morning as the European Central Bank is temporarily buying Portuguese debt in efforts to support that country as they enter the market this week for additional sales of their sovereign debt.
Friday, January 7, 2011
Market commentary
In a downside surprise to elevated expectations, the U.S. economy added 103k total jobs in December according to the nonfarm payroll report. Revisions added 70k to October and November’s figures. Private payrolls rose 113k, well below the expected increase of 178k
The unemployment rate fell from 9.8% to 9.4%, which on the surface does not make sense given the slack job creation. Keep in mind this is a separate compilation from jobs creation, in that this is a survey of households.
Fed Chairman Bernanke testified before the Senate Budget Committee this morning and defended the Fed’s QE2 program while chiding Congress on its inability to maintain fiscal discipline.
The U.S. Treasury market reacted favorably to the weaker than expected jobs data with the yield on the 10 year note falling from 3.41% at the open to 3.34%.
The unemployment rate fell from 9.8% to 9.4%, which on the surface does not make sense given the slack job creation. Keep in mind this is a separate compilation from jobs creation, in that this is a survey of households.
Fed Chairman Bernanke testified before the Senate Budget Committee this morning and defended the Fed’s QE2 program while chiding Congress on its inability to maintain fiscal discipline.
The U.S. Treasury market reacted favorably to the weaker than expected jobs data with the yield on the 10 year note falling from 3.41% at the open to 3.34%.
Thursday, January 6, 2011
Market commentary
Initial jobless claims bounced back above 400k for the week ending January 1 after having fallen below the important mark for one week. The markets have rebounded slightly from Wednesday’s drubbing; however, trading today will be with the specter of tomorrow’s payroll report looming large. There are plenty of reasons to believe that the report will surprise to the upside following a recent retreat in the number of initial jobless claims applications and the shockingly strong ADP employment report yesterday. However, there are also reasons to believe the report will not be as strong as ADP predicts given the downtick in the employment subcomponents of the ISM reports. A revised Bloomberg poll of economists now puts private job growth at +175,000, up from previous estimates of +150,000. These expectations are currently priced into the stock and bond markets. Any surprise to the upside will definitely move interest rates higher.
Wednesday, January 5, 2011
Market commentary
The ADP Employment Report for December is a gasper coming in at +297,000. This is the largest monthly increase in the ADP employment release in the history of the report. Small firms added 117k jobs, medium-sized firms added 144k jobs, and large firms added 36k jobs. The 10-year Treasury was trading at 3.30% prior to the ADP release but has since sold off to 3.40%, down almost a full point.
In addition to the strong employment report from ADP, the Institute for Supply Management’s non-manufacturing index also came in above expectations at 57.1 for December, the best reading since May 2006. As can be expected now, the prices paid component of the report rose from 63.2 to 70.0. New orders jumped from 57.7 to 63.0. However, the backlog of orders fell below the 50.0 hurdle rate to 48.5, a 3 point drop versus November. Employment dropped from 52.7 to 50.5, but remained marginally above the 50.0 hurdle rate. Given the strength in this report the 10 year note is continuing to worsen, now trading at 3.455%!
Finally, the FOMC released their December meeting minutes yesterday. Despite the better economic data, the FOMC is not ready to change their QE2 program saying that “nearly all committee members agreed to continue” with the program. They are disappointed that policy has not helped to bring down the unemployment rate yet. It appears from the minutes that the Fed will continue with QE2 so long as unemployment remains elevated, inflation does not become a concern, or growth does not pick-up well above trend.
Mortgage prices are worse today between .375% and .50%.
In addition to the strong employment report from ADP, the Institute for Supply Management’s non-manufacturing index also came in above expectations at 57.1 for December, the best reading since May 2006. As can be expected now, the prices paid component of the report rose from 63.2 to 70.0. New orders jumped from 57.7 to 63.0. However, the backlog of orders fell below the 50.0 hurdle rate to 48.5, a 3 point drop versus November. Employment dropped from 52.7 to 50.5, but remained marginally above the 50.0 hurdle rate. Given the strength in this report the 10 year note is continuing to worsen, now trading at 3.455%!
Finally, the FOMC released their December meeting minutes yesterday. Despite the better economic data, the FOMC is not ready to change their QE2 program saying that “nearly all committee members agreed to continue” with the program. They are disappointed that policy has not helped to bring down the unemployment rate yet. It appears from the minutes that the Fed will continue with QE2 so long as unemployment remains elevated, inflation does not become a concern, or growth does not pick-up well above trend.
Mortgage prices are worse today between .375% and .50%.
Tuesday, January 4, 2011
Makret commentary
New orders at U.S. factories rose 0.7% in November handily beating the estimated growth of 0.1%. Stocks continue into positive territory on this news adding to gains from the first trading session of 2011. Bond prices are moving higher as well, meaning interest rates are slightly lower. The benchmark 10 year note is trading at 3.31% this morning and mortgage prices are better by approximately .125%.
Later today the Fed will release the minutes from the December Federal Open Market Committee meeting. Most attention will be paid to what the committee said about the market response to QE2 (the second round of quantitative easing).
Later today the Fed will release the minutes from the December Federal Open Market Committee meeting. Most attention will be paid to what the committee said about the market response to QE2 (the second round of quantitative easing).
Monday, January 3, 2011
Market commentary
We start the first week of January 2011 with a busy economic calendar which includes the monthly jobs report. Analysts and traders will try to handicap the jobs data from the employment components of the manufacturing and ADP reports that are scheduled for release this week, but as of today the forecast is for a 9.7% unemployment rate vs. 9.8% in November, and job growth of 135,000 vs 39,000 the previous month.
This morning’s report on manufacturing reflected continued growth as the ISM index rose to 57 from 56.6. The strength in the U.S. and European manufacturing reports has pushed stock markets higher and we see Treasuries trading weaker as the holiday weekend hedges are unwound.
This morning’s report on manufacturing reflected continued growth as the ISM index rose to 57 from 56.6. The strength in the U.S. and European manufacturing reports has pushed stock markets higher and we see Treasuries trading weaker as the holiday weekend hedges are unwound.
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