Prior to 8:30 stock indexes traded better and the bond and mortgage markets were lower in price. At 8:30 weekly jobless claims were reported up 26K back above 300K to 326K, the reaction wasn’t much but did pull stock indexes back to unchanged and treasuries and MBS prices also recovered the early price declines. There wasn’t a lot of movement with April existing home sales at 10:00, a much more important report than claims this morning. The number of people continuing to receive jobless benefits dropped by 13,000 to 2.65 million in the week ended May 10. The four-week moving average, a less volatile measure than the weekly figures, fell to 322,500 last week from 323,500. The unemployment rate among people eligible for benefits held at 2%, today’s report showed. This data is reported with a one-week lag. The job market is improving at the pace of the snail, but it is improving, albeit with low paying jobs.
At 9:30 the DJIA opened -5, NASDAQ +6, S&P +1; 10 yr unchanged at 2.54%, 30 yr MBS price unchanged from yesterday. Normally the 9:30 levels are used to set morning prices but today may not be that easy. At 9:45 the PMI manufacturing preliminary flash index was expected at 55.9 from 55.4, as reported the Flash report jumped to 56.2---not a key report but does suggest that when the final report is released later this month the ISM manufacturing index will be better than in April.
The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to better gauge overall economic activity and inflationary pressure. The national activity index shows a sharp deceleration for the economy in April, to minus 0.32 from March's plus 0.34.
At 10:00, two key data points: April existing home sales were expected to be up 2.1% to 4.69 mil units, as reported sales were up 1.3% to 4.65 mil units, another soft housing report. Yr/yr existing home sales -6.8%; a 5.9 month supply. Although a little softer than expected, the yr/yr decline in March was -7.5% so better in April. April leading economic indicators were right on forecasts +0.5%. There was little reaction to the two reports but within a few minutes the stock indexes backed down somewhat and interest rate markets didn’t change at all.
Stock markets globally traded better today with better news out of China. A preliminary purchasing managers’ index in China from HSBC Holdings Plc and Markit Economics increased to 49.7 in May, a five-month high. That exceeded the 48.3 median estimate of analysts surveyed by Bloomberg. April’s final reading was 48.1. Readings below 50 signal contraction. China’s economic outlook has a strong influence on the global economic outlook; recent reports from the 2nd biggest economy in the world have been soft and one reason investors are increasingly more concerned that global economies from Asia to Europe to the US are becoming more concerned that growth is slowing. Not the case in the UK; Consumer spending rose 0.8% in the first quarter, a 10th straight increase, adding 0.5% to gross domestic product. The economy grew 0.8% in the period, up from 0.7% in the fourth quarter of 2013, the Office for National Statistics said. Business investment increased 2.7%, following a 2.4% gain the previous quarter. Although investors are worried, the global economies are a mixed bag of data.
Ukraine/Russia: pro-Russian separatist fighters in eastern Ukraine mounted four simultaneous attacks against government forces Wednesday night and early Thursday morning. Ukraine is going to conduct a presidential election on Sunday, the separatists are trying to disrupt it. Ukraine Prime Minister said Kiev is calling for an emergency meeting of the United Nations Security Council to address what he said were efforts by Russia to "escalate the conflict" and sabotage the elections. A wasted effort because Russia can veto anything out of the Security Council. Between now and Sunday the likelihood of increased tensions is high. Even with the increased tensions, as we noted Tuesday, the impact on global markets is lessening as a factor driving investors into treasuries; that may change pending what happens over the weekend.
Markets are heading into a long weekend with Memorial Day on Monday. The recent volumes of trade in the bond and stock market are the lowest of the year and likely will be even lower today. There is only one report tomorrow, a key one, April new home sales, but that isn’t going to keep people from coming to work. The bond and MBS markets will close at 2:00 tomorrow afternoon but hardly anyone will be in the pits after 11:00 am. With the Ukraine election scheduled on Sunday it isn’t likely there will be much selling in treasuries.