Market Update

FNMA 30-YR 4.0%

Opened -19 BP from previous close (Opening Price 97.438)

Key Economic Data:

EUR / USD 1.3644 Up 0.0061
USD / JPY 82.1373 Down 0.1885
GBP / USD 1.6066 Down 0.0043

OIL 86.59 Down 0.89
Gold 1,356.50 Up 8.30

Key Economic News:

A few second- and third-tier indicators, on small business sentiment, job vacancies and turnover, and consumer confidence…

7:30: NFIB small business optimism index for Jan…another leg up? This index gave back a part of the gain it posted in November, but all 12 of the analysts who have forecasts for January look for another modest increase. The improvement in recent months reflects modestly better assessments for a wide range of business conditions, including expectations of easier credit, better general economic conditions, sales, and plans to increase employment.
Median forecast (of 12): 94, ranging from 93 to 96; last 92.6.

10:00 JOLTS (Job Openings and Labor Turnover Survey) for Dec…This monthly survey shows steady improvement in vacancies but only modest evidence of a pickup in hires.

17:00: ABC consumer comfort index…faint signal through a lot of noise. This index is back up to the old resistance level of -41, ready (hopefully) to push though again.

This Week - Market Update

After a big increase in interest rates last week the market will have supply to contend with. Treasury will conduct its quarterly refunding beginning Tuesday with $32B of 3yr notes, Wednesday $24B of new 10 yr notes and Thursday $16B of new 30 yr bonds. After the 10 yr not increased 29 basis points in yield and the 30 yr bond up 14 basis points the auctions should see good demand. This week doesn't provide much data, in fact only weekly jobless claims that carry any significance.
 
The bond and mortgage markets have solidly broken out of their long tight ranges to higher rates. The 10 yr note appears to have a clear path to 3.75% while mortgage rates are likely to increase another 10 to 15 basis points in rate. Concerns of higher interest rates in Europe, China and the rest of the BRICs as well as improving economic conditions will keep US rates from falling with the most likely path being up for rates. One key thing to keep in mind, US rates remain as low as we have had for generations. If lenders don't see it as a positive consumers certainly won't.

Bernanke Criticizes Efforts to Audit Fed

Below is an article I came across today that I wanted to share.

The main reason is that Auditing the Federal Reserve isn't exactly what we need to improve the economy. We need to abolish the Federal Reserve and follow the example of the original colonist that set up a monetary system using colonial script. This was money that was created in limited supply to be balanced with the demands of the time.
But the most important feature of their system was that they didn't have to borrow the money from the Central Bank of England and start off in debt. Nor did they have to pay taxes on the money earned.

I will write more about this in the future but the bottom line is this, the more people educate themselves about the Federal Reserve and the entire creation and operation of our monetary system, the more you understand why the Federal Reserve is something we can do without. Now see the article below.

Bernanke Criticizes Efforts to Audit Fed

Federal Reserve Board Chairman Ben Bernanke on Thursday admonished Congress for its efforts to reach further into the central bank's books, saying such pursuits would ultimately lead to a "bad outcome" for the U.S. economy.  

Rep. Ron Paul, R-Texas, who now chairs the House Financial Services subcommittee that oversees the Fed, has been pressing to audit the Fed's monetary policies in order to have greater oversight of the central bank's decisions, primarily how it sets interest rates.  

"It should be up to the Fed to make monetary policy decisions independently of short-term political influences and with an eye for long-term objectives of the economy," Bernanke said in a speech at the National Press Club.  

He said such an audit would be a significant step toward direct congressional oversight of the Fed's monetary policy decision-making.  

"Personally, I think it would be a very bad outcome," he said. "Central banks [that] are independent in their decision-making and have a clear mandate provide a much better outcome both in the economy and financial markets than a central bank which is being dictated by short-term considerations."  

Still, Bernanke made clear that in other areas, like its liquidity efforts, the Fed is an open book and will continue to be so.  
"Every aspect of the Fed's financial dealings are wide open, and we have invited" the Government Accountability Office "to come in and look at all of our extraordinary activities through the crisis and all of our ongoing financial activities," he said. "All of our assets, all of our transactions are open to the public and will be open to the public, and I'm committed to that transparency."  

Bernanke also reiterated hopes that banks will expand lending, though with proper underwriting.  

"We obviously don't want banks to make bad loans. … We want them to make sound loans," he said. "On the other hand, when you have a creditworthy borrower coming and asking for credit, it's in the interest of the bank, it's in the interest of the borrower and it's in the interest of the whole economy that loan get made, so we need to find the appropriate balance."

By Donna Borak

Market Update

FNMA 30-YR 4.0%

Previous close 98.060
Opened Down 0.25bp @ 97.813

Key Economic Data:

EUR / USD  1.3582  Down  0.0053
USD / JPY  81.7345  Up  0.1075
GBP / USD  1.6078  Down  0.0058

OIL  91.34  Up  0.80
Gold  1,352.50  Down  0.50

Key Economic News:

Jobless rate falls to 9.0% in January; Payrolls rise 36,000

The jobless rate unexpectedly fell in January to the lowest level since April 2009, while payrolls rose less than expected, depressed by winter storms. Unemployment declined to 9.0% from 9.4% in December. Employment rose by 36,000 workers, the smallest gain in four months, after 121,000 rise in December that was larger than initially reported. Payrolls were projected to climb to 146,000. Payrolls in construction and transportation, industries most effected by bad weather, dropped in January, while factory employment rose the most since August 1998.

Advice:

If you like to gamble, you might want to float today. But I would recommend you lock today.

Market Update

FNMA 30-YR 4.0%

Previous close 98.470
Opened Down 0.25bp @ 98.219

Key Economic Data:

EUR / USD  1.3687  Down  0.0133
USD / JPY  81.7590  Up  0.2113
GBP / USD  1.6189  Down  0.0002

OIL  91.15  Up  0.29
Gold  1,336.30  Down  4.20

Key Economic News:

Solid productivity growth; Jobless claims down

Data modestly better than expected across the board as jobless claims revert to lower levels while productivity growth posts a solid advance in Q4.

Key Numbers:
Nonfarm productivity +2.6% annualized in Q4 vs. consensus +2.0%.
Unit labor costs -0.6% annualized in Q4 vs. -1.0% consensus +0.2%.
Initial jobless claims 415,000 in week of Jan 29 vs. consensus 420,000.
Continuing claims 3.925m vs. consensus 3.95m.

Main Points:
1. Nonfarm productivity turned in another good showing, rising 2.6% annualized in the fourth quarter (+1.7% yoy). With labor compensation posting only modest gains, unit labor costs fell in Q4. Unit labor costs have fallen 6 of the past 8 quarters, consistent with the sharp increase in corporate profit margins over this period.

2. Jobless claims moved down to 415,000 in the week of January 29, reversing most of the prior week's increase. Even so, the four-week moving average of new claims is now 431,000, somewhat above its low of 411,000 at the end of 2010. The Labor Department indicated that the drop in claims was concentrated in states that saw storm-related increases the prior week, so we are inclined to take the recent numbers more as evidence of inclement weather than any change in the underlying trend.

3. Continuing claims fell to 3.925 million while the number of people receiving extended benefits fell by 68,000 to 4.55m.

10:00: ISM nonmfg index for Jan...will it improve? Its manufacturing counterpart was exceptionally strong this month. Ahead of tomorrow's payroll report, the employment index will be of particular interest, given generally encouraging labor market data.

Median forecast (of 73): 57.1, ranging from 54.5 to 62; last 57.1.

10:00: Factory orders for Dec....a small setback? The durable goods portion of this report is already known and was down 2.5% in December, hence forecasts for a decline in the overall orders measure.

Median forecast (of 67): -0.5%, ranging from -1.5% to +2.0%; last +0.7%.

13:00: Federal Reserve Chairman Ben Bernanke speaks...at the National Press Club. With the last Fed statement making clear that QE2 is essentially on autopilot at this stage, markets will likely focus on any differences in tone with respect to the economic outlook and any hints about the likely procedure and timing for winding down the asset purchase program.

16:30: Federal Reserve balance sheet...With QE2 underway, the Fed's balance sheet remains in expansion mode through midyear.

Advice:

My position on MBS stays neutral today.

 

Market Update

FNMA 30-YR 4.0%

Previous close 98.690
Opened Up 0.16bp @ 98.844

Key Economic Data:

EUR / USD  1.3787  Down  0.0043
USD / JPY  81.4440  Up  0.0993
GBP / USD  1.6186  Up  0.0044

OIL  91.05  Up  0.28
Gold  1,377.40  Down  2.90

Key Economic News:

The Mortgage Bankers Association's index of ,mortgage applications rose 11.3%, almost erasing the 12.9% drop in the prior week. The indexes of purchase loans and refinancing both shared in the increase, advancing 9.5% and 11.7%, respectively.

Another strong labor market reading
ADP report stronger than expected in January, although December figure revised down substantially. Although its forecasting record is spotty, the report is consistent with our expectation that the trend in private-sector hiring is picking up.

Key Numbers:
ADP reports predicts 187k in private non farm payrolls for Jan vs. median forecast +140k.

Analysis:
The ADP report on private-sector payrolls by 187k in January, coming in stronger than expected. The December figure, however, was revised down by 50k to 247k. The January increase was mainly driven by higher employment at service companies (up 166k), but employment at goods-producing firms also rose (+21k). Employment in manufacturing rose by 18k. The headline increase was mainly driven by hiring at small (+97k) and medium firms (+79k); employment at large firms rose only slightly (+11k).

9:00: Quarterly refunding announcement...will they shut down the SLGS window? We expect a package of 72bn-$32bn in 3-year notes, $24bn in 10-year notes, and $16bn in 30-year bonds-to redeem $23.4bn in maturing issue and to raise $48.6bn in net cash. This represents no change from the November refunding in either the size or composition of gross issuance. We do not expect any changes in the coupon schedule, but it is possible that Treasury will use this opportunity to suspend issuance of State and Local Government Securities (SLGS) in anticipation of reaching the debt ceiling sometime this spring. Absent a major surprise from Congress on the debt ceiling, that suspension is coming as the next logical step in creating room to continue the marketable borrowing schedule. It's just a question of when.

Advice:

I believe today we will see similar trading as yesterday, again in the range of 98.626 to 99.000.

I would lock today.

Market Update

FNMA 30-YR 4.0%

Previous close 99.125
Opened Down 0.25bp @ 98.875

Key Economic Data:

EUR / USD  1.3760  Up  0.0066
USD / JPY  81.6003  Down  0.4445
GBP / USD  1.6093  Up  0.0079

OIL  91.55  Down  0.64
Gold  1,339.30  Up  4.80

Key Economic News:

ISM manufacturing, construction outlays, vehicle sales, and the weekly confidence survey...

10:00: ISM manufacturing index for Jan...upside risk. This should be a solid report on momentum in the US manufacturing sector.
Median forecast (of 78): 58, ranging from 556 to 59.5; last 58.5 (revised from 57.0).

10:00: Construction outlays for Dec...which way? Most forecasters anticipate a small increase in outlays, but there are some expectations of significant declines.
Median forecast (of 49): +0.1%, ranging from -1.3% to +0.5%; last +0.4%.

Late morning/early afternoon: Lightweight vehicle sales for Jan...hurt by poor weather and limited supply? Anecodotal reports from the manufacturers suggest a modest hit to sales from poor weather and tight inventories for popular models, but others see a firmer outcome.
For total sales: median forecast (of 38): 12.6mm, ranging from 11.8mm to 12.9mm; last 12.53mm.
For domestic: median forecast (of 17): 9.42mm, ranging from 9.2mm to 9.7mm; last 9.46mm.

17:00: ABC consumer comfort index...faint signal through a lot of noise. If you squint real hard, this index exhibits a very small upward trend from early 2008 on, but it has backed off a 2 1/2 year high over the past two weeks.

Advice:

With the news out of Egypt, it looks like Friday will be a big day. The weaker dollar could help the MBS market, unless we see some crazy numbers out of vehicle sales. I see the market trading around the 99.000 mark.

I don't believe this is a time to gamble. I would lock today.



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