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Tuesday March 28th 2017

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Daily Market Analysis – Al Hensling

Interest rate markets opened this morning unchanged from Friday’s closes. This week is data loaded; Jan employment on Friday and in the meantime a few key measurements. This morning Dec personal income, expected +0.2% increased 0.3% but personal spending in Dec, expected +0.2% was reported unchanged; Nov spending improved from +0.3% to +0.5%. The PCE core unchanged against +0.1% expected; yr/yr core PCE +1.4%. Spending was strong in Nov but for the holidays no improvement. Consumer savings rose to the highest since December 2012 with savings rate at 5.5%; lower gas prices not being spent. Consumers not as optimistic about the future as the media and pundits believe. Screen Shot 2014-07-29 at 8.10.59 AM

US stock indexes this morning in pre-opening trade, the DJIA at 9:00 110 points lower than Friday’s close. Crude this morning trading lower after it became apparent there will not be any OPEC/Russia meeting in Feb to reduce output.

Crude at 9:00 -$1.18 to $32.44. Lower oil prices these days pressure US stocks.

At 9:30 the DJIA opened -125, NASDAQ -30, S&P -13. 10 yr at 9:30 -6/32 at 1.94% +2 bp. FNMA 3.5 30 yr coupon -5 bps from Friday’s close and -1 bp from 9:30 Friday morning. Crude oil at 9:30 -$1.14 to $32.48.

Jan PMI manufacturing, expected at 52.6, as reported 52.4 from 51.2 in Dec; this report 15 minutes prior to the Jan ISM manufacturing index at 10:00 this morning. New orders firmed on strength in domestic demand, offsetting another month of weakness for exports. Backlogs also stabilized in the flash report. The euro-zone’s manufacturing PMI fell to 52.3 in January from 53.2 in December, as expected. The U.K.’s manufacturing PMI rose to 52.9 in January from an upwardly revised 52.1 reading for December. China’s official manufacturing purchasing managers’ index (PMI) fell more than expected in January to 49.4 versus 49.7 in December. China’s official manufacturing purchasing managers index fell for a sixth straight month on Monday. China’s official non-manufacturing PMI fell to 53.5 in January from 54.4 in December. Japan’s manufacturing PMI unexpectedly fell to 52.3 in January from 52.4 in December.

The Jan ISM manufacturing index at 10:00 was expected at 48.3 from 48.2, as reported the index was changed from 48.2 to 48.6, Dec the lowest levels since June 2009. Three months in a row under 50 contraction, manufacturing definitely in recession. No noticeable reaction to the report; manufacturing declining around the world.

Dec construction spending at 10:00 expected +0.6% increased just 0.1%, Nov construction spending revised from -0.4% to -.6%. Construction spending in Dec was not included in last Friday’s advance Q4 GDP, that should weaken the advance reported at+0.7%.

This Week’s Economic Calendar:

Monday,

8:30 am personal income and spending (as reported income +0.3%, spending unch; core PCE unch from Nov)

9:45 am PMI manufacturing index (expected at 52.9 from 51.2; as reported 52.4 from 51.2

10:00 am Jan ISM manufacturing index (expected 48.3 from 48.2, as reported 48.2

-Dec construction spending ( expected +0.6% after declining 0.4% in Nov, as reported +0.1%

Tuesday,

-2:00 pm Jan auto and truck spending (17.5 mil from 13.9 mil in Dec)

Wednesday,

7:00 am weekly MBA mortgage applications

8:15 am Jan ADP private jobs (+190K)

10:00 am Jan ISM services sector index (55.5 from 55.3)

10:30 crude oil inventories

Thursday,

8:30 am weekly jobless claims (+2K to 28K)

-Q4 productivity (-1.8%)

-Q4 unit labor costs (-4.4%)

10:00 am De factory orders (-2.8%; Nov reported -0.2%)

Friday,

8:30 am Jan employment stats (unemployed 5.0% unch; non-farm jobs +188K, private jobs +180K; average hourly earnings +0.3% Nov unch)

-Dec trade balance (-$43.5B)

3:00 pm Dec consumer credit ($16.5B from $13.9B in Nov)

Weaker prices this morning with the Jan employment report on Friday; our models remain bullish for interest rates but as we noted last week the 10 yr note with a 1 handle is tedious. Since the 12th of Jan the 10 yr yield has declined all but four sessions; MBS prices down all but four sessions.

PRICES @ 10:10 AM

10 yr note: -4/32 (12 bp) 1.94% +2 bp

5 yr note: -5/32 (15 bp) 1.36% +3 bp

2 Yr note: -2/32 (6 bp) 0.81% +3 bp

30 yr bond: -11/32 (34 bp) 2.76% +2 bp

Libor Rates: 1 mo 0.425%; 3 mo 0.612%; 6 mo 0.860%; 1 yr 1.139%

30 yr FNMA 3.5 Feb: @9:30 104.61 -5 bp (-1 bp frm 9:30 Friday)

15 yr FNMA 3.0: @9:30 104.11 -6 bp (-4 bp frm 9:30 Friday)

30 yr GNMA 3.5 Feb: @9:30 105.22 -3 bp (+1 bp frm 9:30 Friday)

Dollar/Yen: 120.87 -0.27 yen

Dollar/Euro: $1.0898 +$0.0066

Gold: $1126.80 +$10.10

Crude Oil: $32.00 -$1.62

DJIA: 16,351.45 -114.85

NASDAQ: 4587.22 -26.73

S&P 500: 1927.21 -13.03

 

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