Happy New Year! Not a good start to the year in the bond and mortgage markets this morning. The rate markets are being pressured by better than expected employment data in Germany. Europe’s stock markets are higher today. U.S. stock indexes in early trading this morning indicating the DJIA at 930am would open 185 points higher. The number of people out of work in Germany fell 22,000 to a seasonally adjusted 2.89 million, the Nuremberg-based Federal Labor Agency said today. Economists forecaster a decline of 10,000, the median of 20 estimates. With the exception of a 6,000 increase in October, German unemployment has now fallen every month since June 2009. The average jobless total in unadjusted terms for 2011 squeezed below the 3 million mark at 2.97 million, the lowest since 1991.
For most of 2011 Europe’s debt problems drove the volatile market moves. While there isn’t anything that has changed in Europe, markets seem to be believe the debt mess won’t be as significant to economic growth that had been widely expected. Most of the recent U.S. data reports have been better than forecasts and in Europe it’s somewhat the same picture. Is it a momentary thing based largely on the lack of any real actual defaults or bank failures, or a turning point in thinking? Germany’s unemployment rate declined to 6.8% from 6.9%. In the U.K. its manufacturing index, similar to the U.S. ISM index, fell unexpectedly. The Chartered Institute of Purchasing and Supply rose to 49.6 from a revised 47.7 in November; the consensus forecast was for a drop to 47.3 from an initially reported 47.6 in November. A level below 50 indicates contraction.
While data from Europe is supporting and adding to the improvement in U.S. equities this morning,there hasn’t been much change in the sentiment that Europe’s debt issues have been alleviated in the least. The potential change in thinking is that global economies won’t be hurt as badly as had been believed based on recent reports in the U.S. and a few counties in Europe. Presently markets are somewhat less fearful, but it is a fragile belief that doesn’t have a lot of substance yet.
At 930am the DJIA opened up +140, the 10-Year Note was down -21/32 at 1.95% (+6 bps) and mortgage prices were down -8/32 (.25 bps).
At 1000am December ISM Manufacturing Index was expected at 53.4 from 52.7 in November; as reported the index hit at 53.9. The components; New Orders at 57.6 from 56.7, Prices Paid at 47.5 from 45.0 and Employment at 55.1 from 51.8. Any index over 50 is considered expansion. The initial reaction added a little to the already strong stock market.
Also at 1000am November Construction Spending was expected up 0.5%, jumped 1.2%. November Construction Spending originally reported up 0.8% was revised to -0.2%.
Later this afternoon at 200pm the minutes from the December 13th FOMC meeting will be released.
Regardless the various momentary influences on U.S. markets,particularly the bond and mortgage markets, the 10-Year Note continues to find resistance when it falls below 2.00%; this morning it’s at 1.95% and holding. Most technical remain bullish, however it won’t last much longer unless the yield continues to decline.
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