Rate snapshot: Job numbers deceptive, rates may be running out of steam

by MPA08 May 2014

Very early today the US stock indexes were trading better,
by 8:30 however the key indexes were slightly weaker with the 10 yr note unchanged and MBS prices inching slightly higher. Weekly jobless claims, the only data today in a week that has had little economic news. Weekly jobless claims were better than forecasts, down 26K back to 319K after a pop higher last week. The four-week average of claims, a less-volatile measure than the weekly figure, climbed to 324,750 from 320,250 the week before. The BLS said last week 288K jobs were created in April, looks good on the surface but under the headline, but the share of the working-age population employed or seeking a job fell to 62.8%, matching the lowest since March 1978. “While conditions in the labor market have improved appreciably, they are still far from satisfactory,” Yellen said. She called the unemployment rate, which stood at 6.3 percent in April, “elevated,” and said the share of the labor force that has been unemployed for more than six months, as well as those working part-time who would prefer full-time work, “are at historically high levels.”
Ukraine/Russia; yesterday it appeared Putin was softening a little, suggesting separatists should delay the referendum vote scheduled for this Sunday. Today though Putin said Russia is testing its army’s combat readiness, ramping up tensions after pledging a pullback from Ukraine’s border. Pro-Russian separatists in Ukraine vowed to press ahead with autonomy votes. The uncertainty in the region hasn’t diminished and is one of the two supports for the interest rate markets; the other is a growing concern the stock market may be headed for a pullback.
Recent reports indicate large investors and some hedge funds are beginning to back away for large positions in equity markets. The move away from stocks is mostly concentrated on the more volatile NASDAQ market that is top heavy with tech stocks. So far no major retreat from stocks but equally no improvement in new buying or gains on the indexes the last few weeks. The bulls still holding court in the equity markets but there is an increasing number of economists and analysts that are waving worrisome outlooks; hopefully they will be wrong.
The DJIA opened +4 but immediately went negative, then snapped back higher, NASDAQ opened -14 as investors continue to exit the tech heavy index, the first step in what is likely to be a big exodus from equity markets over the next few months. The S&P opened -2. (see below for 10:00 levels).
Janet Yellen is at the Senate Budget Committee this morning, later this this afternoon Treasury will auction $16B of 30 yr bonds. Yesterday’s 10 yr auction was decent and generally was in line with 10 yr auctions over the last year.
ECB’s Mario Draghi sent a message that the bank is ready to cut interest rates next month if needed and stepped up his expressions of concern about the euro’s exchange rate. The ECB left its benchmark rate at a record low of 0.25% and the deposit rate at zero today. The marginal lending rate was held at 0.75%. The threat of deflation haunts the region’s southern flank struggles to recover from a euro crisis that threatened to break the bloc apart as recently as two years ago. Consumer confidence in the euro area unexpectedly increased in April, a European Commission report showed last month.
There is an increasing belief that interest rates are likely to decline more; the Ukraine thing and the uncertain stock markets here and globally. That said, the bellwether 10 yr is slamming up against very stubborn resistance at the 2.60%/2.58% area and can’t break through. On the other side, even though it appears now that rates may be running out of steam, there is no movement away from US treasuries or MBSs. After a choppy open in the stock indexes at 9:30 the stock market is moving higher; as long as stocks hold or improve and Ukraine/Russia tensions don’t escalate the bond and mortgage markets are vulnerable in the near term. Any increase in the 10 rate will not be much however; the deeper underlying concern at the moment for global stock markets and the potential of a civil war developing in Ukraine should keep rates low.

RateSnapshot courtesy of TBWSratealert.com


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