830am economic releases took the small improvements out of the bond market this morning and improved the weak stock index futures which were trading lower. Weekly Jobless Claims were thought to be up 7K, as reported claims fell again by 13K to 348K, the lowest level in four years; Continuing Claims declined to 3.426 mil frm 3.526 mil last week. January Housing Starts were in line, up 1.5% to 699K annualized units; single family starts though fell 1.0%. January Building Permits were expected down 0.6% but actually increased 0.7%. January Producer Price Index expected up 0.3% up just 0.1%, however the more important core (excluding food and energy) surprisingly increased 0.4%. Inflation, the constant fear for fixed income investors, based on the January data is increasing a little. Treasuries slipped on the data taking mortgage prices lower. Fortunately for the bond market the Federal Reserve has made it clear that the inflation data it focuses on isn’t CPI (Consumer Price Index) but the personal consumption expenditures that accompanies the monthly personal income and spending data. On a year-to-year basis the overall PPI up 4.1% and the core up 3.0%.
Three data points at 830am turned the 10-Year Note from up +5/32 in price to down -9/32 at 900am,the yield prior to 830am 1.92%, at 900am 1.97%. MBS prices up +3/32 (.09 bps) prior to 830am, at 9:00am down -7/32 (.22 bps). DJIA futures prior to 830am down -50, at 900am up +7, not getting the bounce traders were expecting on the better claims and housing data.
At 930am the DJIA opened up +18, the 10-Year Note down -8/32 at 1.96% (+3 bps) and MBS prices down -6/32 (.18 bps).
Nothing new out of Europe last night about Greece. Yesterday there were rather harsh comments from Greece officials toward Germany’s finance minister complaining that Germany wants Greece out of the EU. Greek politicians continue to add more cuts in order to achieve the needed funds to avoid defaulting in March, frustration increasing as each time Greece believes it has met the criteria set out by the EU, IMF and ECB it seems it comes up less than what is demanded. Greek citizens rioting and unsettling officials of the troika leading to more details and further austerity.
The final data today at 1000am is the February Philadelphia Federal Reserve Business Index expected at 10.0 from 7.3 in January, right in line at 10.2. Interior components; New Orders Index 11.7 from 6.9, Employment 1.1 from 11.6 in January and Prices Paid at 38.7 from 31.8. Any index under zero is considered contractions, the higher the index the better the outlook. Employment at close to zero and a big decline from January provides another perspective on the stronger decline in weekly claims earlier this morning. There was no market reaction to the data in either stocks or bond markets.
Longer term interest rates continue to trade within a very tight range; essentially neutral, not bearish but not bullish either. Safety into treasuries over the Europe debt issues continues but with less than in the past. The 10-Year Note, driver for 30-Year mortgages is finding resistance at 1.90% and support at the 2.00% level. MBSs are trading in an even tighter yield range. The remainder of the day rate markets will track equity indexes and whatever any news out of Europe.
