Rate Snapshot: Fed could decide timing of interest rate increase this week

by MPA16 Mar 2015


By David Shirmeyer, CEO at Sigma Research

Slightly better start this morning for both stocks and bonds. Friday the bond and mortgage markets ended the session unchanged Thursday. This week is FOMC week, the meeting starts tomorrow and concludes Wednesday afternoon with the policy statement, Yellen’s press conference and the Fed’s quarterly forecasts for the economy.

The focus from markets on the FOMC meeting is whether or not the FOMC will remove the word patience in guiding markets on when the Fed will begin increasing rates. Patience has been the word used by the FOMC to characterize that the Fed will take it slow and remains data dependent. Markets see patience suggesting the Fed isn’t ready to think about increasing rates. The general consensus is still for a rate increase in June or September with a minor view that the Fed will not move this year; very good arguments can be made on either side you choose.

 

Early this morning the March NY Empire State manufacturing index; expected at 7.0 frm 7.8, as reported 6.97.

 

Last Friday Lou Barnes sent me this data frm the Atlanta Federal Reserve. What the GDP NOW attempts to show is the quarterly GDP as measured daily based on current key economic reports. Instead of waiting for GDP data frm the U.S. Bureau of Economic Analysis (BEA) to be released after the end of the quarter, which of course is the official GDP report and lags the economy as much as three months, this data changes on every report that is included in the BEA computation of growth. T
he chart below clearly shows the impact of momentary data; notice how the GDPNow  dropped when markets saw the recent retail sales data last week; also note the Blue Chip consensus for Growth….quite a difference.

For more specifics click: 
www.frbatlanta.org/cqer/researchcq/gdpnow.aspx.

 

 

 

At 9:15 Feb industrial production was weaker than expected at +0.1% against +0.3%; manufacturing continues to slip, expected +0.1% was down 0.2%. Feb factory use expected at 79.5% dropped to 78.9%. Neither very optimistic but equity markets continue to ignore soft data.

 

At 10:00, March NAHB housing market index expected at 56 frm 55 in Feb,

At 9:30 the DJIA opened +80, NASDAQ +19, S&P +9. 10 yr at 2.07% -4 bp, 30 yr MBS price +20 bps frm Friday’s close and +24 bps frm 9:30 Friday.

 

At 10:00 the NAHB released its housing market index and didn’t meet estimates; the index expected up to 56 frm 55, dropped to 53. The sales, traffic also declined.

 

 

This Week’s Calendar:

         Today,

            8:30 am Mar NY Empire Sate manufacturing index ( expected at 7.00, came at 6.97)

            9:15 am Feb industrial production ( expected at +0.3%, as reported +0.1%)

                         Feb capacity utilization ( expected at 79.5% frm 79.4% in Jan, as reported 78.9%)

           10:00 am NAHB housing market index (expected at 56 frm 55 in Feb, as reported 53)

       Tuesday,

           8:30 am Feb housing starts and permits ( starts -1.6% to 1.048 mil; permits -0.5% to 1.058 mil)

           10:00 am FOMC meeting begins

       Wednesday,

           7:00 am weekly MBA mortgage applications

           2:00 pm FOMC policy statement, Yellen’s press conference and Fed quarterly forecasts

      Thursday,

           8:30 am weekly jobless claims (+4K to 293K)

                        Q4 current account deficit ($105B)

          10:00 am Mar Philly Fed business index (7.0 frm 5.2)

                         Feb leading economic indicators (+0.3%)

 

The best we can say from a technical perspective is that the rate markets have lost some of their near term bearishness but have yet to turn the outlook bullish. Wednesday is the key, how the FOMC frames and how markets interpret the framing  for increasing rates; Yellen’s press conference and the Fed’s quarterly outlook, until then we don’t look for much price gains or selling.

Crude is back in play for the bond market as the price made a new low this morning. Crude will likely decline further as producers continue to add to inventories and demand isn’t keeping up. Low crude prices lessens inflationary concerns. The increasing value of the US dollar also a supporting element for interest rates and is a headwind for future earnings.

 


PRICES @ 10:15 AM

10 yr note:                   +13/32 (41 bp) 2.07% -4 bp

5 yr note:                     +7/32 (22 bp) 1.54% -5 bp

2 Yr note:                     +2/32 (6 bp) 0.63% -3 bp

30 yr bond:                  +30/32 (94 bp) 2.65% -5 bp

Libor Rates:                1 mo 0.174%; 3 mo 0.270%; 6 mo 0.403%; 1 yr 0.713%

30 yr FNMA 3.0 Apr:   @9:30 101.31 +20 bp (+24 bps frm 9:30 Friday)

15 yr FNMA 3.0 Apr:   @9:30 104.48 -1 bp (+15 bps frm 9:30 Friday)

30 yr GNMA 3.0 Apr:  @9:30 102.45 +22 bp (+25 bps frm 9:30 Friday)

Dollar/Yen:                 121.21 -0.19 yen

Dollar/Euro:               $1.0607 +$0.0111

Gold:                          $1156.90 +$4.50

Crude Oil:                  $43.84 -$1.00 (previous low at the end of Jan$44.45)

DJIA:                         17,917.98 +168.67

NASDAQ:                  4912.26 +40.50

S&P 500:                   2072.13 +18.73


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