Rate snapshot: Jobless claims up, stocks open weaker

by MPA25 Sep 2014

Headline durable goods orders declined 18.2% in August, a little weaker than -17% expected; ex transportation orders durables were up 0.7% as expected. The overall decline due to aircraft orders being low after jumping 22.5% last month on strong aircraft demand. In the details orders for U.S. business equipment climbed more than forecast in August. A 0.6% advance in bookings for non-military capital goods excluding aircraft followed a 0.2 percent decrease in July that was smaller than previously estimated, data from the Commerce Department showed today in Washington.
Weekly jobless claims were expected to have increased 16K from the huge decline the previous week; as reported claims were up 12K to 293K against estimates of +20K; the 4 wk average at 298.5K frm 299.75K. Employment headlines continue to look good, firings are near lows of ten years ago; but wages are still not moving higher and many of the jobs are in the lower paying service sector. Yellen has made it clear she is worried about the quality of jobs being created.
At 9:30 the DJIA opened -33, NASDAQ -12, S&P -5. The 10 at 2.54%, 30 yr MBS price +19 bps frm yesterday’s close and +7 bp frm 9:30 yesterday.
At 1:00 Treasury will auction $29B of 7 yr notes to complete this week’s borrowing. Yesterday the 5 yr auction didn’t see the demand that has been the case over the last year; the 12 month average on the bid/cover at 2.73, yesterday at 2.56.
Interest rates still unable to crack key resistance levels but equally showing little increase. The 10 continues to fail at its key resistance at 2.53% but doesn’t see enough selling to push above 2.57%, yesterday’s closing level. MBSs of course ride the wave with treasuries. US stock indexes are looking a little shaky but like the 10 yr and all treasuries, still holding in a narrow range. In the Mid-East Obama made a passionate speech yesterday at the UN and his coalition is becoming increasingly more solid. Bombings in Syria and Iraq will slow the expansion of ISIS but if recent history can be relied on, the US and the coalition of the willing will eventually tire of it; Obama talks in terms of years. The situation is not having any noticeable impact on US, European, or Chinese markets.
The key driver that sent interest rates to the lows we had a month ago is no longer a factor; Ukraine/Russia safety moves to US treasuries is now settling into less military and more diplomacy that in the end Putin will achieve his initial goal. The US treasury market is going to continue to experience solid demand at times; our rates are 155 bps higher in rate than German bunds and higher than most good sovereign debt. Interest rates are not likely to increase much as we have noted previously, but equally we don’t expect rates will decline much either. The 10 yr note should stay within a 20 bp yield range through the rest of the year (2.66% to 2.45%).
The rest of the day will be directed by US stock indexes. The equity market rallied yesterday after two down sessions, this morning it is back to selling with the key indexes being hit hard. The 10 at 10:00 once again testing its resistance at 2.53%, MBS prices where they traded Tuesday after declining yesterday.


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