Treasuries and MBS markets started flat this morning with stock indexes pointing to a better open at 930am. At 830am Q4 Employment Cost Indexwas right on, up +0.4%, however no reaction to itr. At 900am the November Case/Shiller 20 City Home Price Index declined 0.7% from October and down -3.4% year-to-year as expected…no reaction to it.
In Europe at the EU summit most countries in the European Union agreed to tighter budget controls. The EU completed a fiscal-discipline treaty that speeds sanctions on high-deficit states, requiring euro countries to anchor balanced-budget rules in national law. Eight countries outside the euro backed the pact, while Britain and the Czech Republic boycotted it. The meeting ended with German Chancellor Angela Merkel voicing frustration that Athens has failed to overhaul the Greek economy. “Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
Greece aims to complete debt-swap talks with bondholders this week. Prime Minister Lucas Papademos told reporters after the summit that he is “strongly committed” to reaching a deal. Meeting at the 16th summit in two years, they also agreed to bring the region’s permanent bailout fund, the European Stability Mechanism, into operation on July 1st, a year ahead of schedule. As far as traders are concerned there was no progress on Greece and the EU summit was just another summit where a lot of talk and no direct action occurred; steps in the right direction but slower than a snail in molasses.
UK consumer confidence improved in January according to gauge of sentiment it added 4 points from December to minus 29, the strongest reading since June. The increase in confidence and the reaction to the EU summit improved equity markets in the UK and Europe adding some thrust to U.S. markets early this morning.
At 930am the DJIA opened up+55, the 10-Year Note down -2/32 at 1.85% unchanged and MBS prices -2/32 (.06 bp).
January Chicago Purchasing Managers’ Index,expected at 62.5 was unchanged from December; as released the index was lower at 60.2. The New Orders component reported at 63.6 from 67.1, Prices Paid Index was 62.4 form 63.8 and the Employment Index reported 54.7 from 59.2. There was no initial reaction to the data in the bond and mortgage markets but the key stock indexes backed off from the better levels prior to the report, still holding gains but lost about half of the improvement.
The final data today, at 1000am, the Consumer Confidence Index for January was expected to have increased to 67.0 from 64.5 in December; it was weaker, at 61.1 from revised 64.8 in December. Two economic releases that were less than expected pulled equity markets back and put support in the interest rate sector.
The 10-Year Note is at a resistance level between 1.85 and 1.80%. Most of the momentum oscillators are weakening a little but the wider perspective remains positive.
