By David Shirmeyer, CEO at Sigma Research
Mortgage prices better early, treasury markets quiet also slightly better. At 8:30 weekly claims were in line with forecasts, down 17K to 297K. The four-week moving average, which smooth’s out the data, increased by 4,750 to 299,000. The U.S. labor market reached its longest stretch of job creation since at least World War II in October and is on pace to post the best yearly gain in employment since 1999; most low paying but markets don’t care, a job is a job as far as economists are concerned. The fact that the high majority of jobs are part-time, or low paying, or both, is reality but is best ignored by investors. That is it for data today
Most attention this morning is on the ECB; the bank left interest rates unchanged and said policy makers will reassess stimulus next quarter. Draghi said the ECB could alter “early next year the size, pace and composition of our measures” after policy makers kept interest rates unchanged today, in line with analysts’ estimates. Europe’s stock markets declined on the ECB news on disappointment that the bank didn’t add more details to its asset-backed purchases. Draghi is slowing down his comments about more asset purchases and waiting until next quarter to, as he said “reassess” additional stimulus. He is taking fire frm Germany and other ECB members. He is holding his press conference now. The ECB’s challenge is that as EU governments struggle to convince their electorates of the need for economic reforms and haggle over fiscal stimulus, it is left as a lonely defense against further deterioration.
Tomorrow is employment day; cyber-data day. Estimates are unchanged frm earlier this week; non-farm jobs +225K, private jobs 230K; non-farm private jobs if they match estimates would be 16K better than growth in October. Unemployment unchanged at 5.8%, average hourly earnings +0.2%.
The ECB and Mario Draghi are roiling the markets this morning with comments that swing both way; more stimulus but maybe not, and not now. Germany is holding out and is resisting purchases of sovereign debt for EU members; Draghi trying to ride the center line is causing increased volatility this morning. Early this morning the 10 was at 2.27% -2 bps frm yesterday and MBS prices were +11 bps. At 9:30 the 1 unchanged at 2.29% and 30 yr MBS price down 5 bps. The DJIA opened -34, NASDAQ -3 and S&P -4.
The 10-year has support at 2.30% and is holding after the volatility over the weekend that dropped the rate to 2.17%. Our models still holding slight bullish reads, however all of our studies are only marginally positive. A close over 2.32% on the 10 will turn everything bearish. We continue to believe rates are not going to increase much through the rest of this year. Much depends on consumer spending over the holidays, so far consumers are spending but not as significantly as analysts had thought so far.
PRICES @ 10:00 AM
10 yr note: +3/32 (9 bp) 2.27% -2 bp
5 yr note: +2/32 (6 bp) 1.60% -1 bp
2 Yr note: +1/32 (3 bp) 0.54% -1 bp
30 yr bond: +11/32 (34 bp) 2.97% -2 bp
Libor Rates: 1 mo 0.158%; 3 mo 0.234%; 6 mo 0.327%; 1 yr 0.564%
30 yr FNMA 3.5 Dec: @9:30 103.78 -5 bp (+6 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Dec: @9:30 103.80 -1 bp (-7 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Dec: @9:30 104.60 -2 bp (+7 bp frm 9:30 yesterday)
Dollar/Yen: 119.90 +0.11 yen
Dollar/Euro: $1.2378 +$0.0067
Gold: $1205.90 -$2.80
Crude Oil: $66.47 -$0.91
DJIA: 17,864.34 -48.28
NASDAQ: 4780.05 +5.58
S&P 500: 2070.60 -3.73