Tuesday, March 29, 2011

Market Snapshot by Sigma Research - Tuesday's Report

Tuesday, March 29, 2011
Treasuries and mortgages were mostly flat yesterday with mortgage prices about .09 bp better. This morning the 10 yr note off a little at 9:00 with mortgage prices down .09 bp. Stock indexes yesterday were slightly lower, this morning opening a little better. Overall since Friday's closes markets are relatively unchanged. At 9:00 the Case/Shiller home prices were weaker as expected; the 20 city home prices fell 0.2%, yr/yr -3.1%, the biggest year-over-year decrease since December 2009; the 10 city prices yr/yr down 2.0%. Estimates for the price change for the 20 cities ranged from declines of 3.7% to 2.4%, according to the forecasts of 29 economists Media makes some noise over the monthly report; it is two months old and unless you live in the 20 cities it is meaningless, real estate is a local issue.

At 10:00 a more important data point; the Mar consumer confidence index from the Conference Board. Forecasts were for confidence to have slipped from 70.4 in Feb to 65 in March, as reported at 63.4 frm 72.0 revised from 70.4. The present situation index better at 36.9 frm 33.8 in Feb, expectations index at 81.1 frm 97.5 and the inflation index at 6.7 frm 5.6 in Feb, the highest reading since Oct 2008 but still anemic.

This afternoon at 1:00 Treasury will sell $35B of 5 yr notes, yesterday's $35B of 2 yr notes was so-so, not bad but not strongly bid either. Today's 5 yr may be another one that is not as strong as we would like to see, the 5 yr sector of the yield curve has been the weakest for the last couple of weeks. The 5 yr is at its highest yield in the past three weeks so that may entice investors some.

St Louis Fed Pres Bullard out again with comments that the Fed may be able to cut $100B from the QE 2 $600B treasury buying that is scheduled to be completed at the end of June. Bullard has been generally opposed to the QE by the Fed. Fed officials have purchased $1.7 trillion of mortgage debt and Treasuries through March 2010 to pull the U.S. out of the recession. The Fed’s second round of purchases has come under fire from Republican leaders in Congress who say it risks inflating asset-price bubbles and stoking inflation. “One of the things that I am concerned about is that the policy is so easy right now, that we have to get started on the process of going back to normal because it will take a long time to do that,” he said.

Debate is increasing within the Fed about when to end its support through quantative easing. Various Fed officials are saying the easing must continue as the economic recovery is still fragile while others want it ended soon and that the Fed should begin tightening to fend off inflation which so far isn't being seen. In Europe however the ECB is about to start tightening and increasing rates following China, Brazil, India and Russia. Hard to handicap at the moment but it is increasingly unlikely interest rates in the US will decline and more likely begin to creep higher.

After trading weaker this morning, by 9:45 the 10 yr note moved back to unchanged and mortgages off .12 bp at 9:00 were unchanged. The stock market opened a little better but backed off and went negative at 9:45 supporting the move up in interest rate prices. Likely to be quiet this morning until we get the results of how the 5 yr auction went. The MBS prices below are at 9:30, since then prices improved from -3/32 to +3/32 at 9:45 a gain of .18 bp frm initial pricing by lenders.

Monday, March 28, 2011

Market Snapshot by Sigma Research - Monday's Report

Monday, March 28, 2011
More selling in the rate markets this morning; as we have noted recently interest rates are headed higher after all the safety moves triggered by Japan's problems. The stock market took a heavy hit on panic selling over Japan but is now trading better than prior to the earthquakes and tsunami. Interest rates also higher than prior to the issues. In Japan over the weekend, a lot of contaminated water surrounding the reactors and calls for the head of the power company to resign as the inability to provide accurate information or know what is happening has finally pushed the normally placid Japanese government to push for a change in leadership.

This morning at 8:30 Feb personal income and spending were reported; income was expected to have increased 0.3% it was on target, spending expected up 0.5% increased 0.7%. Personal savings was up 5.8% for the month but down from +6.1% in Jan. The PCE price index increased 0.6% and yr/yr +2.1%; the highest monthly increase on the PCE since June 2009 and the highest yr/yr since May 2010. ON the release interest rate prices already lower were knocked a little lower.

The DJIA opened a little better (+11), not much but still starting higher after last week's strong rally increasing 362, NASDAQ +99 last week and S&P +35. All indexes now above levels prior to Japan.

At 10:00 Jan pending home sales, sales with contracts signed but not yet closed, was expected up 0.3% after falling 2.8% in Jan. increased 2.1% but yr/yr still down 8.2%. No initial reaction to the report.

This afternoon at 1:00 pm Treasury begins its monthly 2, 5, and 7 yr auctions with $35B of 2 yr notes. Should go well given the recent increase in rates, its a 2 yr and generally does get decent demand.

This Week's Economic Calendar:
9:00 am Jan Case/Shiller 20 city home price index (-3.3%)
10:00 am Mar consumer confidence index (65.0 frm 70.4)
1:00 pm $35B 5 yr note auction
7:00 am weekly MBA mortgage applications
8:15 am ADP non-farm private jobs estimate for March (210K)
1:00 pm $29B 7 yr note auction
8:30 am weekly jobless claims (383K -1K; continuing claims 3.70 mil frm 3.721 mil)
9:45 am Mar Chicago purchasing mgrs index (69.5 frm 71.2 in Feb)
10:00 am Feb factory orders (+0.4%)
8:30 am March employment data (non-farm jobs +185K, non-farm private jobs +203K, unemployment rate unch at 8.9%)
10:00 am March Nat'l ISM manufacturing index (61.4 unch frm Feb)
Feb construction spending (-0.7%)
3:00 pm March auto and truck sales (N/A)

Last week St Louis Fed Bullard suggested the Fed should review whether to curtail plans to buy $600B in Treasuries (QE 2) because of strong economic data. His remarks added additional reason for selling the bond and mortgage markets. While we don't think the Fed will actually cut the intended $600B of purchases scheduled to end at the end of June, we do not believe there will be anymore quantative easing from the Fed. Although there are 90 days left for Fed purchases markets won't sit tight until the end comes. Traders already moving to discount the end and concerns about who will pick up the slack in private markets once the Fed finishes; $10B a month by the Fed needs that much more demand. That is unlikely at the present interest rate levels. We have note for a week that rates would increase, although they did last week we are not expecting an explosion in rates. Looking for the 10 yr note and mortgage rtes for 30 yr fixed to be up about 50 basis points from present levels by the end of the year.

Friday, March 25, 2011

Market Snapshot by Sigma Research - Friday's Report

Friday, March 25, 2011
Treasuries and mortgages opened flat this morning while the stock index futures were aiming at a better open at 9:30. At 8:30 the final Q4 GDP was better than expected, from +2.8% to up 3.1% with expectations of an increase to 2.9%. Consumer spending, about 70% of the economy, rose 4.0% last quarter, the most since the same three months in 2006, compared with 4.1% previously estimated and a 2.4% rate in the third quarter. It is old news however, Q1 has about ended; nevertheless equity markets were boosted a little that the economy was actually stronger than what the market had traded. Q1 is likely to drag some with oil prices increasing and supplies of components that are made in Japan have slowed.

At 9:30 the stock market opened +22 on the DJIA, the 10 yr note up 4/32 at 3.40% and mortgage prices at 9:30 +4/32 (.12 bp).

Japan suffered another 6.2 after shock overnight. The Prime Minister said the problems at the nuclear power plants is serious and grave and not yet near under control. It has been two weeks since the initial quake and tsunami, the stock market took a huge hit on the reaction but the key stock indexes are now trading at or above where they were prior to disaster. Our markets also appear to be ignoring turmoil in the Mideast and Libya as the equity markets keep improving and the bond market that got a safe haven boost is now back to yields prior to the earthquake. Today in Germany business confidence didn't fall as much as analysts were expecting, more evidence that Japan's tragedy hasn't hurt the economic outlook in Europe either.

At 9:55 the Reuters/U.of Michigan consumer sentiment index expected at 68.0 frm 68.2 two weeks ago fell to 67.7, the lowest level since Nov 2009. The index at the end of Feb was 77.5 so a big drop in this very volatile series. The expectations index fell to 57.9 frm 58.3 the lowest since March 2009; the current conditions component at 82.5 frm 83.6 and the 12 month out index to 60.0 frm 64.0. Even though weaker the initial reaction didn't hamper stocks or improve the bond and mortgage markets.

Technically, the 10 yr note has minor support at 3.40% where its 20 day MA is and on the chart support. The rate markets have seen prices decline for seven days now as markets shrug off the implications of Japan's disaster and the unsettled Mideast situation and Libya's civil war.

Thursday, March 24, 2011

Market Snapshot by Sigma Research - Thursday's Report

Thursday, March 24, 2011
Two data points this morning; weekly jobless claims were slightly better than expected, down 5K to 382K. Weekly claims continue to decline slowly nevertheless it is a plus for the economic outlook. Continuing claims fell to 3.721 mil frm 3.723 mil last week while the smoothing 4 wk average on claims declined to 385,250 frm 386,750, the lowest average since July 2008. Also at 8:30 but somewhat disappointing Feb durable goods orders; expected to be up 1.1% were reported down 0.9%. Taking the volatile transportation orders away durables were expected to be up 1.8% but were down 0.6%. Companies may be tempering their purchases of new equipment until further signs emerge that the recovery is broadening. Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, increased 0.8% after falling 2.3% in January.

Prior to the two 8:30 reports treasuries and mortgages were trading slightly weaker, stock indexes were slightly better. There was little reaction in both markets to the data; at 9:00 the 10 yr -6/32 3.37% +2 bp and mortgage prices -4/32 (.12 bp). At 9:00 the DJIA +61, crude oil at $106.11 +$0.37, gold up $1.50. Overall quiet again this morning, markets settling a little after the big swings on Japan and Libya.

Yesterday a lot was made of Portugal's parliament rejecting the austerity plans put forth by Portugal's Prime Minister; as he said he would if parliament rejected his plan, he tendered his resignation. There was a lot of talk that Portugal would drag the euro currency down but so far that has not occurred. A bailout for Portugal may total as much as 70 billion euros ($99 billion), said two European officials with direct knowledge of the matter. The country will follow Greece and Ireland needing a bailout. We do not expect any significant market reactions to the issue as it was generally expected and debt issues in Europe are not new news.

In Libya progress is being made; more bombings of ground forces and military equipment after clearing the skies. French Defense Minister Gerard Longuet said the coalition has intercepted conversations among Libyan officers indicating that many are ready to abandon the regime. Comments coming from coalition forces that the intervention may lasts days or weeks, but not months.

Later today (11:00 am) Treasury will announce the amounts for next week's 2 yr, 5 yr and 7 yr note auctions; last month the total $99B is likely what we will see next week also.

At 9:30 the DJIA opened +56, the 10 yr -8/32 3.37% +2 bp and mortgage prices -5/32 (.15 bp). So far this morning markets have been orderly and likely will continue that way the rest of the day. We continue to expect interest rates to struggle at these levels but the rate markets take their marching orders from the equity markets. The stock indexes are now back to where they traded prior to the earthquakes and tsunami in Japan that shook the world and is still causing serious problems with their nuclear power plants not yet under control.

Wednesday, March 23, 2011

Market Snapshot by Sigma Research - Wednesday's Report

Wednesday, March 23, 2011
Treasuries and mortgages opened better this morning after a quiet day yesterday. The stock indexes early on were pointing to a slightly weaker open the reason for a little better trade in the bond and mortgage markets.

In Japan officials said city tap water may be unsafe for infants while Japan’s government sought to assure people that radiation levels detected in the food chain following a nuclear accident don’t pose a health threat. The Health Ministry earlier today advised against eating leafy vegetables, broccoli and cauliflower produced near the stricken Dai-Ichi power plant, located 220 kilometers (135 miles) from Tokyo. Radioactive iodine levels taken yesterday at a treatment facility in Katsushika ward were double the recommended limit for babies, a city official said in a televised briefing today. Some progress in containing one of the reactors but still no end to the concerns. The maximum reading reported so far at the site is 500 millisieverts per hour, meaning a worker in the vicinity would receive the maximum recommended lifetime dose in 30 minutes.

Investors are making moves in Japan; Monday Warren Buffett said he is making investments in Japan, today PIMCO is reported to be purchasing Toyota Motor Credit debt. Increasingly the outlook for the global economy is improving after the panic that ensued after the earthquakes and nuclear reactor problems in Japan were thought to bring the world economies down.

In Europe estimates for growth in Britain were lowered. U.K. government bonds stayed higher after Chancellor of the Exchequer George Osborne said growth this year will be 1.7%, lower than a previous forecast for a 2.1% expansion.

Earlier this morning the weekly MBA mortgage applications increased 2.7% from one week earlier. The Refinance Index increased 2.7% from the previous week. The seasonally adjusted Purchase Index increased 2.7% from one week earlier and was 15.3% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 2.5%. The four week moving average is up 1.0% for the seasonally adjusted Purchase Index, while this average is up 3.3% for the Refinance Index. The refinance share of mortgage activity remained constant at 66.4% of total applications. The adjustable-rate mortgage (ARM) share of activity increased to 5.9% from 5.6% of total applications. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.80% from 4.79%, with points decreasing to 0.96 from 1.07 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.02% from 4.03%, with points increasing to 0.90 from 0.85 (including the origination fee) for 80% loans.

So far this morning markets are quiet with not much trading. After two weeks of very high market volatility time to sit back and evaluate what is actually occurring and the impact near and longer term.

The only data today; Feb new home sales at 10:00 were expected up 1.0%, another shocking number, down 16.9% to 250K units annualized. The median sales price $202,100.00 down 8.9% frm Feb last year; at the present sales pace there is a an 8.9 month supply. The decline to 250K annualized is the lowest since 1962 and the median sales price the lowest since Dec 2003. The initial reaction boosted mortgage prices as the 10 yr price gained, the equity markets were already lower but fell more on the very weak sales report On Monday Feb existing home sales fell 9.6%; both reports were way below what analysts had expected.

We have been talking about the outlook for US interest rates in the last couple of days; that in our view rates will begin to increase soon. As we noted it is a moving target based primarily on the economic outlook, kind of rattles that outlook a little when we see sales of homes, both existing and new, in Feb plunge much more deeply than what had been thought. The weakness in housing is nothing new but the magnitude of the Feb declines is worrisome to say the least. It might have been somewhat weather related as Feb was not good for most of the country, nevertheless the declines are shocking.

Tuesday, March 22, 2011

Market Snapshot by Sigma Research - Tuesday's Report

Tuesday, March 22, 2011
The rate markets opened weaker today following selling yesterday. At 9:00 mortgage prices off 7/32 (.22 bp) frm the close yesterday, the 10 yr note -8/32 at 3.35% +2 bp. Not much new in the news from Libya and Japan; the coalition forces have bombed and missiled key cities in Libya trying to weaken Qaddafi forces (or is it Gadhafi, Gaddafi, Kaddafi, or Kaddafy). One US F 15 went down but not by fire, both pilots are safe. Aerial strikes enabled rebel forces to push out from their eastern stronghold of Benghazi. The countries involved in the attacks, Britain, France and the US are now debating who should lead the remainder of the intervention.

In Japan the reactors are still a problem but haven't worsened. The debate in markets has now shifted to how Japan will recover; there is an increasing but fragile view growing in markets that Japan is a buy in terms of equities. Japan will rebuild and recover according to huge investor Warren Buffett. Analysts from The Street are falling in line that the global economic impact won't be as serious as was thought at the onset of the earthquakes and tsunami. It isn't a slam dunk but with Buffett saying he is investing in the country the rest of the lemmings may fall in line and march to the same tune. Still very much a moving target however. The biggest hurdle we can see is electric power, Japan has lost a huge amount of power supply that won't be replaced quickly. Prime Minister Naoto Kan yesterday said there’s “light at the end of the tunnel” in the nation’s battle to avert a nuclear meltdown at a crippled power plant, which threatened a deeper shock to the nation’s consumers.

European Central Bank officials indicated the economic uncertainty caused by Japan’s earthquake may not deter them from raising interest rates next month. ECB President Jean-Claude Trichet told the European Parliament he has “nothing to add” to his March 3 remarks, when he said policy makers may raise the benchmark rate from a record low of 1.0% at their next meeting in April.

The stock market opened relatively unchanged ahead of 10:00 data on housing prices and regional manufacturing from the Richmond Fed.

At 10:00 FHFA reported Jan housing prices fell 0.3% frm Dec; Dec was revised from -0.3% to -1.0%. Yr/yr housing prices declined 3.9%.

Also at 10:00 the Richmond Fed manufacturing index; the index fell to 20 frm 25, the reaction cut the losses in treasuries in half and pushed stock indexes down.

Although so far today market volatility is subdued or a change, market volatility will continue to remain high. Not the kind of market environment that is conducive to taking risks unless one has a huge deep pocket. Sentiment changes rapidly on any news headline. We are most outwardly concerned about Japan and Libya but there is a lot to be concerned with especially in the overall Mideast region. Protests are increasing in many of the countries in the area; Syria, Yemen, Bahrain, Egypt, Tunisia, Turkey, and the list is growing. So far nothing serious is building but it is being closely monitored.

The outlook for US interest rates has not changed with Japan and Libya in the picture; interest rates in the US are going to head higher. Rates in China increasing, in India increasing, in Europe increasing; the Fed is close to being done with QE 2 buying $600B of treasuries, inflation fears are on the rise in most of the world while here it hasn't yet spread out of food and energy components it is only a matter of time before all prices begin to edge up. Not much inflation but with the 10 yr note at 3.35% and historically low there will be no hesitancy by investors dumping long term fixed income investments. It may be next month or six months but rates will increase.

Sunday, March 20, 2011

Market Snapshot by Sigma Research - Friday's Report

Friday, March 18, 2011
Treasuries and mortgages started flat very early this morning but prices fell at 8:45 when the foreign minister of Libya announced Libya will halt all military operations, probably due to the UN vote last night for instituting a no-fly zone over the country. When the headline scrolled the DJIA index jumped to +130 and the 10 yr note which was off 5/32 dropped an additional 8/32 taking the 10 yr yield up to 3.31%. Whether his comments will be taken seriously we will wait and see but it did move markets initially.

The G-7 countries early last night approved currency intervention to stop the increase in the yen, the first time in 11 yrs that there is a coordinated move by central banks to intervene in currency markets. The result has been a big decline in the yen versus most currencies including the dollar. The intervention has a target for the yen but the G-7 countries will not say what it is. Back n the 80s there were a number of times central banks intervened in currency markets, each time the interventions were short-lived and generally didn't have the intended affect.

In Japan work continues to keep the cooling tanks from over-heating. The power company saying it now has laid the power lines and hopes to have power to one of the reactors tomorrow and the others possibly by Sunday. Expects however are saying there is no assurance that when power is connected that the cooling pumps will work. No reports of additional radiation leaks overnight. News that there has been poor management and maintenance in the Japan nuclear power system for years starts the finger pointing even before the present crisis is stabilized.

There are no economic reports to deal with today, yesterday the Mar Philadelphia Fed business data was stronger than forecasts. While there was no noticeable reaction to it with other issues overriding, markets won't ignore it. The US economy still holds optimism but there is anecdotal evidence consumers may be less optimistic than in Dec when the measurements of confidence and sentiment were increasing. Higher energy and food costs are working into consumer concerns. In the UK consumer sentiment is falling on concerns about jobs and economic recovery. An index of sentiment dropped 10 points to 38, the lowest since records began in 2004.

Crude oil was higher early this morning but is now lower on the announcement of a cease fire in Libya. Gold stronger on the intervention on the yen as currency market volatility will increase over the next few weeks.

At 9:30 the DJIA opened +130, mortgage prices -7/32 (.22 bp) and the 10 yr note yield at 3.33% +7 bp. All markets re-tracing the panic movements seen early this week and last.

Week-ends are always something of an issue for traders with two days away; this weekend is even more so with Japan's problems well documented and now the Libyan situation with the UN initiating a no-flay zone over the country and then early this morning the announcement from Libya officials that they would implement a cease fire. Crude oil was up about $2.50 prior to the 8:30 announcement of the cease fire, now down $0.30, the stock market rallied and the bond market sold off on less safety concerns. Will we come out of the weekend in tact? No additional radiation leaks n Japan and the cease fire holding? Tough and risky to be in markets these days with the high levels of volatility.

We don't expect much of a rally in stocks and not much selling in bond markets today with the weekend and all the uncertainty still hanging over the markets.

Wednesday, March 16, 2011

Market Snapshot by Sigma Research - Wednesdays report

Wednesday, March 16, 2011
Treasuries and mortgages opened flat this morning as did the stock indexes, but by 9:00 treasuries and mortgages doing slightly better and stock index futures lower on economic data at 8:30 and still a lot of uncertainty about Japan's problems and its eventual impact on global economies. Crude oil has traded down for the past few days, this morning crude is up over $1.50 at 9:00, gold is also up about $10.00 after heavy selling over the past few sessions. At 9:30 the DJIA opened -50, 30 yr mtgs +8/32 (.25 bp) and the 10 yr note +11/32 to 3.26%.

The Tokyo stock market improved overnight, up 6.5% after huge selling recently. The problems at the nuclear reactors in Japan are still a major concern. The number of deaths in the country is still undetermined, the impact on Japan's economy is still unquantified and its implications to other economies is unknown. Lot of discussions and opinions but nothing of substance that markets can get its arms around. It is going to weeks and maybe months to assess the longer term consequences from the tragedy; in the meantime US markets will likely continue with high degree of volatility. Another earthquake over night; 6.0 magnitude. Reports that many are leaving Tokyo continue to increase.

At 8:30 Feb housing starts were expected to be down about 4.0%; starts were down 22.5% as reported, the lowest start level since Mar 1984. Building permits were expected up 2.0%, they fell 8.2%. Jan starts were revised higher, to +18.4% frm +14.6%. Recent data on home construction has been extremely volatile as the data this morning clearly shows.

Feb producer price index was reported at 8:30; overall PPI jumped a huge 1.6%, more strong evidence that food and energy are going to impact consumer spending. When food and energy prices are left out PPI was up 0.2%. Yr/yr overall PPI +5.6% and ex food and energy +1.8%. The Fed, and therefore markets, still ignore what has always been very volatile food and energy prices when calculating inflation so its all good in the eyes of the Fed and the markets. The problem with that is that food and energy are no longer that volatile, both just continue to increase. At some point, and we don't have any idea when, markets will have to deal with it as consumer spending will be impacted and in turn will be a drag on economic growth. How much of drag and when it will begin to show up in the data we don't want to speculate.

Its Wednesday so we get the MBA weekly mortgage applications. The Market Composite Index, a measure of mortgage loan application volume, decreased 0.7% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 0.9% from the previous week and is the highest Refinance Index recorded in the survey since December 2010. The seasonally adjusted Purchase Index decreased 4.0% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 4.9%. The four week moving average is up 1.6% for the seasonally adjusted Purchase Index, while this average is up 6.6% for the Refinance Index. The refinance share of mortgage activity increased to 66.4% of total applications from 65.5% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.6% from 6.0% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.79% from 4.93%, with points increasing to 1.07 from 0.87 (including the origination fee) for 80% loans. This is the lowest contract 30-year rate observed in the survey since the week ending January 14, 2011.The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.03% from 4.17%, with points decreasing to 0.85 from 1.15 (including the origination fee) for 80% loans. This is the lowest contract 15-year interest rate observed in the survey since the week ending December 3, 2010.

Inflation in Europe continues to increase; inflation accelerated to the fastest in more than two years in February, increasing pressure on the European Central Bank to raise interest rates. Inflation in the 17-nation euro region quickened to 2.4% from 2.3% in January. A week ago the ECB warned it may have to increase its base rate as inflation increases. Inflation is the fastest since October 2008 and exceeded the ECB’s 2 percent limit for a third month. Something to watch but at the moment all focus remains on Japan and safety moves into US treasuries continuing to push rates lower.

Treasuries and mortgages continue to improve with increased intraday volatility; the stock market is leading, yesterday the DJIA started down almost 300 points but ended -137 as it climbed out of its hole treasury and mortgage markets lost ground. Market volatility today remains high and must be monitored closely; we will and let you know if price worsening develops as it did yesterday.

Tuesday, March 15, 2011

Market Snapshot by Sigma Research - Tuesdays report

Tuesday, March 15, 2011
The potential of a nuke meltdown increased overnight sending all investors running to cash. The Tokyo stock market with the Nikkei 225 (NKY) index posting its biggest two-day drop since 1987, while commodities slid and Treasuries jumped. Europe's equity markets all lower, in the US in pre-market trade at 8:30 had the DJIA down 278, crude oil down $3.85 and gold off $30.00. Conflicting reports that are steaming moment to moment out of Japan; earlier last night the Prime Minister was cautioning that a meltdown was increasing quickly, asking people to leave the area, tape up windows and/or stay inside. At 8:30 this morning Tokyo Electric Power Co. engineers at a nuclear plant restored water to safe levels, helping drive down radiation after residents within 30 kilometers (19 miles) were ordered inside to avoid contamination. “The radiation levels are above normal, but at most only about one-10th of a chest X-ray and are not harmful to the health,” the government said in a separate statement today.

Whether or not there will be a serious meltdown is an obvious concern but markets are beginning to realize that Japan's economy will be impaired for years in the process of re-building. The impact of one of the largest economies in the world being dragged down is still not fully understood by markets or the Fed. The Fed is meeting today in the scheduled FOMC meeting, talk already about the potential of another easing move resulting from the crisis. The Bank of Japan infused $183B into the financial system yesterday and another $83B today to support the system.

Yesterday the US markets appeared to have not taken the Japanese situation as seriously as we would have thought; the DJIA fell just 51 points while the Treasuries and mortgages hardly moved. Today with increased fears of a nuclear meltdown all markets are being impacted. Crude oil continues to fall on the idea that Japan's need for oil will decline as its economy grinds to almost a halt. Longer term however, crude will eventually increase as markets realize Japan won't have nuclear power for years to come. Gold also is declining, no one wants to hold anything but cash now; all commodities are lower this morning. The news out of Japan is conflicting, there is little understanding now as to the eventual impact for the global economies; today it is a run to cover many market positions.

More not so good news; German investor confidence unexpectedly fell for the first time in five months in March. Its confidence index of investor and analyst expectations, which aims to predict developments six months in advance, declined to 14.1 from 15.7 in February. Economists had expected a gain to 15.9.

The troubles in the Mideast have been put in the back seat with Japan now the main focus; nevertheless things are not improving in the region. Troops from the Gulf Cooperation Council, including Saudi Arabia, crossed into Bahrain yesterday, the first cross-border intervention since a wave of popular uprisings swept through parts of the Arab world. Shiite protesters and Bahraini forces escalated Sunday, with more than 100 people injured as demonstrators demanded democracy through elections from their Sunni monarch.

Economic news here in the US this morning has been pushed to the side; the Mar NY Empire State manufacturing data this morning at 8:30 showed the overall index up to 17.5 frm 15.43, a little better than expected but with Japan it is already out-dated news. The sub components; new orders fell to an index read of 5.81 frm 11.80 in Feb, the employment component increased to 9.09 frm 3.61 and prices pd for materials increased to 53.25 from 45.78 (any index read over zero is considered expansion.

At 10:00 the Mar NAHB housing market index hit at 17, up 1 point from the past five months and was as expected.

Later this afternoon the FOMC meeting will conclude with the usual short policy statement. The Fed is unlikely to have much comment in the statement regarding the current economic crisis that is escalating out of Japan. Expect a lot of debate in the coming days over whether or not the Fed may have to initiate another easing move of some kind. It is too soon for any definitive decisions, the Fed will wait for more news and analysis on the impact on the US economy before committing to any additional easing.

Everything happening now in the world is supportive to US treasuries and therefore mortgage markets. Early this morning the 10 yr note yield fell to 3.23% down from 3.37% at the close yesterday. By 9:30 the 10 yr rate had increased to 3.26%. The equity markets are trading lower today with investors and traders scrambling to market neutral positions or simply selling. Yesterday the equity market opened soft with the DJIA off 140 points but by the end of the session the DJIA ended down just 51 points; today may be a lot different pending continual news coming out of Japan on their nuke problem. This morning the DJIA opened down 185, the 10 yr +30/32 at 3.26% -11 bp and mortgage prices up 19/32 (.59 bp); within five minutes of the open the DJIA traded down 293 on a news flash Japan suffered another 6.0 earthquake.

It is all happening rapidly this morning, no one wants to wait to see facts, the markets are highly volatile and emotional at the beginning of the day. Today may be exceptionally volatile as the news unfolds. Already in the first 30 minutes of trading in equities the indexes are well off their lows and the bond and mortgage markets have backed off their best levels so far.

Monday, March 14, 2011

Market Snapshot by Sigma Research - Mondays report

Monday, March 14, 2011

Treasuries and mortgages opened a little better this morning with the key stock indexes lower. The world still focused on Japan's earthquakes and Tsunami. There are now three nuke plants in jeopardy of a meltdown and the Tokyo stock market was hammered hard last night, the largest loss in 2 yrs, down 6.0%. Crude oil continues its decline on continued belief demand will decline in Japan. There are no economic reports scheduled today, the calendar has data points mid-week however. This week is marked by tomorrow's FOMC meeting with the short policy statement out at 2:15 Tuesday afternoon.

This Week's Economic calendar:
8:30 am Empire State manufacturing index (17.0 frm 15.43 in Feb)
Feb import and export prices (N/A)
10:00 am NAHB housing market index (17 frm 16)
2:15 pm FOMC policy statement
7:00 am weekly MBA mortgage applications
8:30 am Feb housing starts and permits (starts -4.4%, permits +2.0%)
Feb PPI (+0.6%; core +0.2%)
Q4 current account balance (-$110.0B)
8:30 am weekly jobless claims -10K to 387K; con't claims 3.750 mil frm 3.771 mil)
Feb CPI (+0.4%; core +0.1%)
9:15 am Feb industrial production (+0.6%)
Feb capacity utilization (76.5% frm 76.1%)
10:00 am Feb leading economic indicators (+0.9%)
Mar Philadelphia Fed business index (28.0 frm 35.9 in Feb)

The DJIA opened down 65 at 9:30, the 10 yr note +10/32 at 3.36% -3 bp and holding below 3.40% since last Thursday. Technically the l0 yr note and mortgage markets are breaking some resistance levels.

Japan's woes are filtering around the world; crude lower on the belief demand in Japan will decline, emerging market equity markets rallying on re-building boom that will be huge in Japan. Most all attention now is on Japan's problems but the Mideast is still out there with continued protests in a number of states in the region while Qaddafi is waging war with protesters in the oil region and ports. In Europe a week ago comments from the ECB that it would be considering increasing interest rates next month to head off increasing inflation; now that looks less likely, England didn't increase rates and there are voices calling for the ECB to hold rates low to keep recovery moving forward and less concern over inflation increasing.

The rest of the day today for the bond and mortgage markets will be dependent on how equity markets trade; so far the key indexes are weaker but not much. Tomorrow's FOMC meeting should keep investors and traders from major moves. The Fed will keep interest rates at their present levels, talk about concerns over inflation, still worry over the strength of the US recovery with slow improvement in employment and no signs of recovery in the housing sector.

Friday, March 11, 2011

Market Snapshot by Sigma Research - Fridays report

Friday, March 11, 2011
The overriding news this morning is the earthquake that hit Japan that set off a huge Tsunami, moving to Hawaii and by 10:00 this morning due to hit the west coast of the US. The earthquake at 8.9 is the strongest to hit Japan in over 100 years. Our prayers for the people of Japan where the death toll at 9:00 is at 300 and climbing.

Treasuries and mortgages started lower in price this morning, down 10/32 on the 10 and -6/32 on MBSs; by 9:00 the 10 had moved back to unchanged and mortgage prices off 2/32 (.06 bp) frm yesterday's strong close. At 9:30 the DJIA opened -35, the 10 yr note and mortgages unchanged from yesterday's closes. By 9:45 the DJIA was trading a little better with the 10 yr -5/32 and mortgage prices -4/32 (.12 bp).

At 8:30 Feb retail sales increased 1.0% as expected, ex auto sales up 0.7% also as forecast; ex gasoline sales sales were up 0.9%. The increase is the most in four months, spurred by job gains and more seasonable temperatures. The 1.0% increase in sales followed a revised 0.7% rise in January that was more than double the previous estimate. Sales climbed 2.3% at automobile dealers, consistent with industry figures that showed car purchases climbed last month to a 13.38 million unit annual pace that was the best since the government’s cash-for-clunkers program in August 2009. The reaction to the strong sales report was not as expected, the DJIA index fell more and at 9:15 traded down 60 points. US retail sales have been pushed off the table as stock markets in Europe and here are being impacted by the quake in Japan with insurance companies being hit hard.

Oil prices are tumbling this morning, crude fell under $100.00 before bouncing back a little and then retreating again at 9:30. While Saudi Arabia is preparing for the "Day of Rage" protest by Shiite Muslim minorities, there is little concern among oil traders that it will amount to much. The impact on oil markets is coming from Japan and the view that the damages will cause a decline in use for oil. Still a touchy market as always. That Japan will need less oil based on usage is questionable in our view but now traders are taking money off the table pushing the price lower.

At 9:55 the U. of Michigan mid-month consumer sentiment index, expected at 76.5 frm 77.5 at the end of Feb; the sentiment index hit at 68.2 the lowest since last Oct. The current conditions index at 83.6 frm 86.9; expectations index at 58.3 frm 71.6 and the 12 month economic outlook at 64 frm 85. Overall a very negative report but it didn't generate much selling in equity markets and actually caused the rate markets to fall a little in prices. The reason for the selling in the bond market was due to the inflation outlook in the report, it increased; inflation fears continue to rest under every data point.

At 10:00 Jan business inventories, expected up 0.8%, were up 0.9%, Dec was revised to +1.1% from 0.8%. Sales were up 2.0% with the inventory to sales ratio was 1.23 months. Not a market mover.

The bond and mortgage markets rallied nicely yesterday turning many of out technical indicators from neutral to slightly bullish, in order to confirm a move lower in rates near term we want to see more gains today which would confirm our initial technical observations.

Thursday, March 10, 2011

Market Snapshot by Sigma Research - Thursdays report

Thursday, March 10, 2011
Treasuries and mortgage markets doing better this morning after a nice rally yesterday. At 8:30 weekly unemployment filings were generally expected to be up 7K, we were looking for 14K; as released claims increased 26K back to 397K. Continuing claims were lower at 3.771 mil frm 3.791 mil last week, the lowest continuing claims since Oct 2008. The 4 wk average smoothing the week by week volatility increased 8K to 392,250.

Also at 8:30 the Jan international trade deficit expected at $41.5B was higher at $46.34B. Imports jumped 5.2%, the most since March 1993, while exports grew 2.7%. Exports increased to $167.7B, boosted by record shipments of industrial supplies and more deliveries of motor vehicles and food. Imports climbed to $214.1B from $203.6B in the prior month. Purchases of capital goods rose to a record $41.7B in January, while auto imports were the highest since February 2008. The January trade figures showed the U.S. imported 290.7 million barrels of crude oil, the most since August. The value of oil imports increased to $24.5 billion from $22.5 billion. The average price per barrel of imported crude reached $84.34, the highest since October 2008.

Weekly claims up more than expected put a very slight bid in the bond market; the 10 yr note at 9:15 up 3/32 while mortgage prices were trading up 4/32 (.12 bp) frm yesterday's strong close. The stock indexes were weak and at 9:30 the DJIA and the other two key indexes opened soft. Crude oil trading lower this morning as is gold.

More unrest in Egypt yesterday, Christians fighting Muslims over a Christian man in love with a Muslim woman; 13 people were killed in the fight. In Libya Qaddafi forces re-took a city held by the opposition. None of it has impacted oil prices with crude trading down $1.10 at 9:30.

The Bank of England left its base rate unchanged in their meeting. The British pound took a hit. The Brits are facing increasing inflation, and even with the ECB moving close to increasing rates the BofE chose to leave rates unchanged sending the London stock market lower along with all of Europe's stock markets.

The DJIA opened down 160 points at 9:30 and sent US bond and mortgage prices higher. The 10 yr note is almost at its past resistance level, trading at 3.43% at 9:30; 3.40% has halted all attempts to move lower.

At 1:00 Treasury will complete its borrowing for the week with $13B of 30 yr bonds in a re-open of the 30 yr bond issued last month. Yesterday's 10 yr auction was very strong with bidding at 3 basis points lower than where the 10 was actually trading prior to the auction. Today's 30 yr will also likely see strong demand, the amount is rather small.

At 2:00 Treasury will report that the Feb budget deficit for the month totaled an additional $196B; meanwhile in Washington Congress and the Administration haven't done squat in their debates over spending cuts. Maybe Congress is listening to Michael Moore who is running around espousing the US isn't broke and we have all the money we need. Apparently Mr. Moore fails to understand spending more money that you have implies the US doesn't have the money and has to borrow it; our deficit is now over $7 trillion.

Wednesday, March 9, 2011

Greenville has been named one of Men’s Journal’s 2011 Top Cities to Live

By now you may have heard that Greenville has been named one of Men’s Journal’s 2011 Top Cities to Live!
As part of our ongoing efforts to build awareness for Greenville, the Greenville Convention and Visitors Bureau is thrilled to share that our press agency, TK PR, was instrumental in landing this great accolade on behalf of Greenville, South Carolina.
Taryn Scher first contacted writer Robert Earl Howells back in November 2010 thanks to a tip from SCPRT that he was looking to gather ideas for the story.
The request was as follows:
For the "Best Places to Live 2011" package for Men's Journal magazine, I'm looking for thoughtful suggestions with timely relevance. What new or ongoing trend or recent development makes this town/city/neighborhood one of the best places in which to live NOW? Any size is fine. Mainly U.S., though we did sneak in Vancouver last year. Outdoorsy is important, but not every city can be Boulder. Arts, economy, a-lot-for-your-money home prices, entrepreneurial energy, off-the-grid or back-to-nature living….all good. Please...no boilerplate travel/tourism PR copy
Scher presented Howells with a list of statistics and reasons why Greenville had to be included. After some brief back-and-forth encounters, the last correspondence Scher received was on November 22, 2010 saying “Good for now, Taryn. I put Greenville on my list of candidates that I submitted to my editors. We’ll see...”
Well, here it is in the April 2011 issue of Men’s Journal! Click here to read the article.
Scher checked in with Howells earlier today and received the following reply - " I hope you stand up and take a bow, Taryn, because your pitch definitely brought Greenville onto our radar. Of course, lots of towns came onto our radar. It wouldn't be there if it didn't deserve it. I look forward to a visit someday. All best, Bob"

Market Snapshot by Sigma Research - Wednesdays report

Wednesday, March 09, 2011
Treasuries and mortgages started stronger this morning after two days of declining prices. At 9:00 the 10 yr up 6/32 at 3.53% -2 bp, mortgage prices on 30 yr conventionals +7/32 (.22 bp). Crude oil trading higher this morning as is gold; the stock indexes at 9:00 were generally unchanged. Nothing technically significant in the price gains this morning, the bellwether 10 yr note still confined to its tight range between 3.60% and 3.45%.

Mortgage applications increased 15.5% from one week earlier, according to data from the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending March 4, 2011. The Market Composite Index, a measure of mortgage loan application volume, increased 15.5% on a seasonally adjusted basis from one week earlier. . The previous week did not include a holiday adjustment for Presidents' Day. The Refinance Index increased 17.2% from the previous week and was the highest Refinance Index observed since the week ending January 14, 2011. The seasonally adjusted Purchase Index increased 12.5% from one week earlier and was the highest Purchase Index recorded this year. The four week moving average for the seasonally adjusted Market Index is up 2.7%. The four week moving average is up 1.2% for the seasonally adjusted Purchase Index, while this average is up 3.6% for the Refinance Index. The refinance share of mortgage activity increased to 65.5% of total applications from 64.9% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.0% from 5.5% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.93% from 4.84%, with points decreasing to 0.87 from 1.29 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 4.17%, with points increasing to 1.15 from 1.07 (including the origination fee) for 80% loans.

Markets still struggling with the potential impact on the economy from rising oil prices. The obvious questions; will oil prices continue to increase and if so how will that impact the fragile economic recovery? Analysts from some of the big brokerages are increasing their expectations that oil will continue to increase, possibly by as much as another $25.00/barrel. If that happens the economic recovery may stall with consumers unable to continue increasing discretionary spending. The equity markets would lose the recent gains and the bond market would once again see money flow back and out of stocks. Presently the interest rate markets are stuck in their respective narrow ranges while the turmoil in the Mideast and in Libya is very fluid and can change quickly. The equity market is vulnerable to continuing selling while the rate markets hold steady.

At 10:00, a few minutes ago, Jan wholesale inventories, the only data today, expected to be up 0.9% were up 1.1%; Dec revised from +1.0% to +1.3%. Sales were up 3.4% with markets looking for +0.5%; Dec sales revised to +1.1% frm +0.4%. The inventory to sales ratio at 1.13 month from 1.15 months in Dec. No reaction to the report.

At 1:00 this afternoon Treasury will sell $21B of 10 yr notes, re-opening the 10 yr note issued last month. Yesterday's 3 yr note went well with good demand.

Crude oil up a little this morning, gold up and stock indexes lower. The bond and mortgage markets benefiting but for three weeks the long end of the yield curve including mortgage rates have not changed appreciably, chopping back and forth with no trend direction. We continue our slightly negative outlook for interest rates; as long as the 10 yr treasury holds above 3.40% (currently 3.53%) we are unwilling to get involved by holding rate locks. There is little to gain but also there is little to lose given the tight trading range. As long as the choppiness continues we suggest caution.

Tuesday, March 8, 2011

Upstate News - This article was compliments of GGAR:

This article was compliments of GGAR:

The “Southwest Effect” is here. Air service begins March 13, 2011, with a “modest” seven daily flights to five destinations, says Southwest Chief Executive Gary Kelly. Early bookings have been strong, Kelly told the Greenville Area Chamber of Commerce in March 2011, but Southwest usually waits a year before expanding service, depending on market demand. More flights would improve the estimated $65 million in business development, a multiplier effect already anticipated by the Upstate area. To kick off its new partnership with Upstate, Southwest plans to tout our area in the May 2011 issue of its onboard Spirit magazine. Spirit is read by as many as eight million travelers on more than 3,400 daily flights in 65 cities and 33 states, according to recent news. The 0‐page editorial will focus on economic development, tourism, education, healthcare, technology, and, of course, real estate. To learn more, visit ww.spiritmag.com. More flights means new jobs, many of which should arrive later in the year as local businesses respond to the improving economy, as well as the influx of travelers. Unemployment rates are going down, particularly in areas close to the airport transportation hub. For example, Spartanburg unemployment hit 12.7% in 2009, but by the end of 2010, the rate was 10.9% and falling. BMW is hinting at adding more vehicles to the assemblies produced in Spartanburg, such as the popular 3‐series, but no announcement has been made yet. The company says it is extremely happy with the X3 and other models that were not made in America until the Spartanburg plant was built. Like Southwest, BMW also has a multiplier effect on the economy; it’s 1,700 plant employees contribute to the creation of approximately 30,000 jobs statewide, many of which are in Upstate. In late January, Omnisource Staffing in Greenville said a BMW parts supplier is looking to add 200 full‐time employees. Aerotek Staffing says it’s looking to add 100 new employees to Duncanbased
Draexlmaier, another automotive supplier. The outlook for the Upstate economy
is rosy, but housing is a lagging indicator of improvement. Transaction volume
suffered typical seasonal winter slowdowns, but prices thawed on good economic news.
Between January 2009 and January 2010, housing sales dipped 7.1%, the
lowest number in over a year. Median home prices rose 2.3% yearover‐ year, from $132,900 to $136,000, while average prices rose 0.7%. With the spring home buying season just around the corner, sales volume will likely pick up again. Prices could
continue to rise, but that depends on homebuyers’ response to higher interest
rates and whether the economy keeps chipping away at the unemployment

Market Snapshot by Sigma Research - Tuesdays report

Tuesday, March 08, 2011
A little better start to the day with the 10 yr note holding a minor gain at 9:00 and mortgages following as usual. Crude oil is slightly lower on comments that OPEC members are discussing whether to call an emergency meeting. OPEC's next scheduled meeting is set for June but there are talks now about the potential need for a meeting earlier; so far according to current news wires there is no meeting set so far. Crude slipped as Kuwait’s oil minister said OPEC members are considering whether to convene an “urgent meeting” to determine whether more output is needed. Futures trimmed earlier losses after Goldman Sachs Group Inc. and Bank of America Merrill Lynch raised their oil-price forecasts. Violence in Libya, Africa’s third-largest crude producer, has cut output by as much as 1 million barrels a day, according to the International Energy Agency. The North African country pumped 1.39 million barrels a day in February, down from 1.59 million the previous month, according to recent estimates.

After a little better open early, by 9:15 mortgage prices fell back to unchanged while the 10 yr note traded off 2/32. The stock indexes prior to the 9:30 open pointing to a little better start. All about oil as has been the situation for the past month. If oil is up the equity market struggles; until the last few days if oil prices were higher the bond and mortgage markets held slight gains in prices. Since late last week however the US rate markets have lost some of the safety moves that had pushed interest rates down a tad. There isn't any reason for lower interest rates except the so-called fear factor into safety of US treasuries. With some momentary moderation of the expansion of the Mideast civil protests in the last week treasuries and mortgages are re-focusing on the improving economy and concerns that inflation may begin to increase. Last week the ECB shook up the markets with comments from Jean Claude Trichet the head of ECB that the bank may increase interest rates next month to fend off inflation increases developing in Europe.

Over night more comments of higher rates possible from the ECB; European Central Bank Governing Council member Axel Weber said he doesn’t want to correct market expectations for as many as three quarter-point increases in the bank’s benchmark interest rate this year. Inflation may be “more sustained and more fundamental” than the ECB’s latest projections suggest, Weber said. “There are a number of fundamentals in emerging markets, a number of effects which worsen the medium to long-term inflation outlook,” he said. “This has to be countered in a timely way. I do see considerable future price pressures.” The ECB last week predicted euro-area inflation will average about 2.3% this year and 1.7% in 2012. It aims to keep inflation just below 2.0%.

Why do we care what happens in Europe with their interest rates? Because if the ECB starts increasing base lending rates the US rate markets will move higher on any tightening by the Bank. Our Fed may want to hold the line with the Fed's zero to +0.25% FF rate but that won't matter at the middle and long end of the yield curve. US rates will edge higher if in fact the ECB actually follows through with their comments. The US economic recovery continues with US interest rates still historically low, traders always nervous about inflation and the reality that US rates are very unlikely to decline make any forecast for much lower interest rates questionable. We do not subscribe to the view mortgage rates will decline much, rather we believe interest rates will gradually increase.

This afternoon Treasury begins three days of more borrowing; today at 1:00 $32B of 3 yr notes, tomorrow $21B of 10 yr notes re-opening the 10 yr issued last month, and Thursday $13B of 30 yr bonds re-opening the 30 yr issued last month. Recent Treasury auctions have not been as strongly bid as in the last couple of years, the past two 2 yr note auctions in the last two months haven't gone very well, hedgers and traders are likely to be cautious with the borrowing this week.

There are no scheduled economic reports today; rate markets will focus on equity markets and the oil market as has been the situation for weeks; and the results of the 3 yr auction at 1:00 pm.

Monday, March 7, 2011

Market Snapshot by Sigma Research - Mondays report

Monday, March 07, 2011
Crude oil is up again this morning, the same struggles in Libya but over the weekend focus has shifted slightly to Saudi Arabia, the giant in the room when it comes to oil prices and Mideast unrest. Dissidents in Saudi Arabia have called for a protest on Friday, so far the Saudi situation has not been a direct factor for oil markets therefore for all markets; that there is an organized protest coming is heightening fears that it may lead to some form of revolution. While we don't believe it is likely, the demand for oil versus supply is so tight it doesn't take much to send prices higher. Websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch. Unrest in the region is increasing, in Libya war between dissidents and Qaddafi increased over the weekend.

Crude at 9:13 this morning up $1.23 at $105.65 (see below for 10:00 price). The US stock market is opening better this morning, somewhat out of character with oil prices increasing. Recent trade in equities has been selling on higher oil prices based on the view that as energy prices increase the economy will cool. So far not the case today, apparently some investors don't believe higher energy costs will actually cool of consumer spending. We do not subscribe to that view; the economic recovery remains questionable as to its strength and sustainability with high unemployment, depressed housing sector and only a moderate increase in consumer debt expansion. $4.00/gallon gasoline will have a dampening impact on consumers here and around the globe. Later this afternoon Jan consumer credit will be released, looking for an increase of $3.3B, not much.

This Week's Economic Calendar this week is thin on data:
3:00 pm Jan consumer credit (+$3.3B)
1:00 pm $32B 3 yr note auction
7:00 am weekly MBA mortgage applications
10:00 am Jan wholesale inventories (+1.0%)
1:00 pm $21b 10 yr note auction
8:30 am weekly jobless claims (+14K to 382K; con't claims 3.750 mil frm 3.774 mil last week)
Jan trade deficit (-$41.5B)
1:00 pm $13B 30 yr bond auction
2:00 pm Feb Treasury budget (-$196B)
8:30 am Feb retail sales (+1.0%, ex autos +0.6%)
9:55 am U. of Michigan sentiment index (76.5 frm 77.5)
10:00 am business inventories (+0.8%)

Gold futures for April delivery rose as much as $16.10, or 1.1%, to $1,444.70 an ounce and were at $1,443.60 at 8 a.m. on the Comex in New York. Prices beat the previous high of $1,441 set March 2 and gained the past six weeks, the longest winning streak since September 2007. Safety moves on Libya's increasing violence and increasing fears of inflation. Inflation fears are always with us especially with concerns over how high commodity prices will go as most commodities keep moving higher. Last week Trichet said the ECB may increase interest rates as inflation is increasing; we don't see it here because markets and the Fed refuse to recognize the implications from increasing food and energy prices; if we don't want something we simply refuse to pay it much attention.

The equity markets are shaking short term traders a little this morning, rallying when oil is increasing. Recently its been easy; sell stock indexes on higher oil, buy when oil is lower. The bond and mortgage markets are pressured this morning on oil prices, the stock market better and this week's $66B of borrowing by Treasury. The bellwether 10 yr is swinging in a 20 basis point yield range taking mortgages with it. Both markets remain bearish for the longer term. Unless the economy flips, and that isn't likely, the path for interest rates is up. Those sitting and waiting for substantially lower mortgage rates are going to end up disappointed; as we have noted previously the likelihood of much lower rates doesn't look good now.

Friday, March 4, 2011

Market Snapshot by Sigma Research - Fridays report

Friday, March 04, 2011
The Feb employment report this morning was spot on in terms of job growth; non-farm jobs were up 192K overall, private job growth increased 222K. The unemployment rate however was another surprise, expected to have increased from 9.0% in Jan to 9.1% unemployment declined to 8.9%. Hardly any employment report these day isn't without question, the decline in the unemployment rate once again has been largely ignored as flawed; the real rate of unemployment is still well over 10% if those that have not been looking for a job but are employable were to be looking. In Jan and Dec non -farm job revisions added another 58K jobs; Jan from +36K to +63K and Dec up an additional 31K. Feb average hourly earnings were unchanged with forecasts of an increase of 0.2%. Employment rose in manufacturing, construction and temporary help agencies, while state and local government payrolls slumped. Weekly jobless claims yesterday declined 20K, the lowest weekly filings since may 2008. The recent improvements on non-farm jobs and weekly unemployment claims is becoming difficult to ignore. (We criticized ADP yesterday for the lack of accuracy on their job estimates compared with the BLS data, Wednesday they said 217K private jobs, the BLS said today 222K----a stopped watch is accurate two times a day----good work ADP).

Yesterday treasuries and mortgage took a sizeable hit in anticipation of this morning's employment report; this morning after the rep-ort the 10 yr note traded unchanged while mortgage prices after falling 12/32 (.37 bp) yesterday are up 6/32 (.18 bp) at 9:00 am. Yesterday the stock market did the same, rallying in anticipation of the strong employment report; this morning into the open at 9:30 the key indexes were about unchanged-----in the case of stocks, buy the rumor sell the fact, in the case of rate markets its sell the rumor and buy the fact.

Crude oil is higher today as the situations in Libya and other countries in the area haven't subsided. Libya’s opposition leaders rejected a mediation offer by Venezuelan President Hugo Chavez, an ally of Qaddafi. As the prospects of a rapid end to the fighting in Libya faded, protesters elsewhere in the region resumed their demands for civil rights, higher living standards and the ouster of entrenched autocratic regimes. In Yemen, an opposition group said two people were killed when security forces attacked protesters; tens of thousands joined demonstrations calling for the ouster of the present regime. Now after the employment report that turned the focus away from the Mideast, its back to the oil market as it is impacted on any news of potential disruptions in supply. Crude this morning is up over a dollar ($+1.34 at 9:40)

The bond and mortgage markets have experienced an increase in volatility over the last few days. The bellwether 10 yr note, drive for mortgage rates has failed on any rallies when its yield hits 3.40% but finds support when its yield climbs to the 3.60% area; mortgage rates also stuck in a 15 basis point rate range on 30 yr mortgages.

The DJIA opened +2 points at 9:30 while the 10 yr price was up 3/32 and mortgage prices +7/32 (.22 bp). The remainder of the day traders will focus on the oil markets and any potential news from the Mideast. So far today we don't make much out of the rally after the recent sell-offs in mortgages and treasuries both markets are showing no directional movement, a lot of chop but no trend in either direction. The wider picture however is bearish for US rates with inflation concerns still mounting and comments yesterday that the ECB may be ready to raise rates. There is little reason now to hang on to the idea that rates will decline much; as long as civil wars don't break out in the Mideast that would drive oil over $120.00 the bond market will not likely decline a lot.

At 10:00 Jan factory orders were up 3.1% much stronger than expected, in Dec orders were revised from +0.2% to +1.4%. There was no reaction to the better orders report.