Rate Snapshot: Q2 revisions almost cut in half previously estimated wage increase

by MPA25 Nov 2014

By David Shirmeyer, CEO at Sigma Research

Prior to 8:30 the 10 traded at 2.294%; at 8:30 Q3 preliminary GDP took a little out of the improvement. GDP was expected to be revised lower, from 3.5% to 3.3% but was revised higher to 3.9%. The better growth didn’t initially have a lot of negative reaction but being better removed a potential positive for bonds had the report been what was expected. After the 4.6% increase in the second quarter, it marked the biggest back-to-back advance since late 2003. Q3 consumer spending up 2.2% annualized up frm +1.8% on the advance report last month.

The headline was good, but there were revisions in Q2 that were not so good; the previously estimated increase in wages and salaries was cut almost in half and corporate profits last quarter rose less than in the prior three months. Wages and salaries rose by $51.9B, revised down from an initially reported $102.5B gain. Preliminary data showed they climbed by $66B in the third quarter. The headline good, but the guts a little less so on the Q2 revisions. Consumers, as you know. Account for 70% of GDP, the revision in Q2 incomes isn’t to be ignored. Corporate profits in the third quarter came in at $1.873 trillion, following $1.842 trillion for the second quarter; forecasts were for profits to be up 4.6%, as reported up 3.8%.


At 9:00 Sept Case/Shiller yr/yr 20 city price index increased 4.9% against +4.7% expected, but is the slowest pace since Oct 2012. Month to month +0.4% against forecasts of +0.3%. Shiller saying he is concerned prices are increasing at a pace that future home buying may be negatively affected; not sure why he said it because the increase is slowing The Sept FHFA home price index was unchanged against estimates of +0.4%; yr/yr +4.3%. There are mixed signals on home prices for September with FHFA flat and Case-Shiller up 0.4%. The next numbers on housing demand are Wednesday with new home sales and pending existing home sales.


The DJIA opened +33, NASDAQ +9, S&P +3; 10 yr at 2.31% +1 bp and 30 yr MBS price +2 b bps from yesterday’s close and +22 bps from 9:30 yesterday.


The final data point this morning; November consumer confidence index from the Conference Board; expected at 96.5 from 94.5 in October, the index fell to 88.7. Also the Richmond Fed manufacturing index index declined to 4 from 20, estimates were 16.


This afternoon Treasury will auction $35B of 5 yr notes; yesterday the 2 yr auction met with strong demand.


We have continually noted that interest rates would not increase through the end of this year as a number of analysts have been forecasting. This morning the 10 after 20 days has broken its rock-solid resistance at 2.30% to 2.29%. Not a huge break but it is a start that will push rates lower; the 10, if it can close below 2.30% today would set a run to 2.20% before the end of the year.


Looking ahead to tomorrow; there are a number of potential market-moving reports before many exit for the rest of the week. Weekly claims, durable goods orders, personal income and spending, October new home sales, October pending home sales, and the U. of Michigan end of month consumer sentiment index. The plate is full tomorrow, after that we start thawing the turkey for Thursday’s feast.


Stay tuned through the day now. We floated last night and want to continue this morning.




PRICES @ 10:15 AM

10 yr note:                   +5/32 (15 bp) 2.29% -1 bp

5 yr note:                     +2/32 (6 bp) 1.59% -1 bp

2 Yr note:                     +6/32 (18 bp) 0.52% -2 bps from yesterday’s 2 yr auction

30 yr bond:                  +14/32 (44 bp) 3.00% -2 bp

Libor Rates:                1 month 0.155%; 3 month 0.232%; 6 month 0.326%; 1 yr 0.564%

30 yr FNMA 3.5 Dec:  @9:30 103.75 +2 bp (+22 bps from 9:30 yesterday)

15 yr FNMA 3.0 Dec:  @9:30 103.93 -4 bp (+8 bps from 9:30 yesterday)

30 yr GNMA 3.5 Dec:  @9:30 104.59 -2 bp (+19 bps from 9:30 yesterday)

Dollar/Yen:                 117.93 -0.34 yen

Dollar/Euro:               $1.2451 +$0.0009

Gold:                          $1195.40 -$1.20

Crude Oil:                  $76.13 +$0.35

DJIA:                          17,800.01 -17.89

NASDAQ:                   4755.10 +42.13

S&P 500:                    2068.24 -1.17