Mix Bag of Data Resulting In No Change To Mortgage Rates
WOW! What a mix bag of data already out today as some readings were surprisingly better than anticipated, and others are downright pitiful! ADP said there were 220K private jobs created in April and they revised the March number from 191K to 209K. A little better than 210K expected but didn’t cause a lot of reaction because fifteen minutes later Commerce released the first reading on Gross Domestic Product (GDP) in the first quarter of 2014 came in at an anemic 0.1%, below the 1% expected and down from the 2.6% in the final quarter of 2013. The 0.1% was the weakest performance in three years. Of course the folks on TV spin the unusually harsh winter weather as the primary reason for the downturn in growth. Weakness was seen in investment in business equipment, residential home construction, US exports, government spending and as inventories increased at a much slower pace. The consumer spending component rose by 3% after a 3.3% advance in the fourth quarter. This rise was attributed to a surge in utilities, such as heating during the "harsh winter" along with increased costs for health care. So the harsh weather hurt GDP, but boosted consumer spending?
After the two reports in fifteen minutes the 10yr was unchanged. The very weak GDP, while scary on its surface, the weather in Q1 likely had more negative impact on the economy than what had been thought. Keep in mind that this is the advance report and always is revised a month later when the preliminary report includes more data from the third month of the quarter. We believe when we see the preliminary report in a month the revision will be higher. Since the end of Q1 and the end of weather issues, gains in retail sales, employment and manufacturing at the end of the quarter indicate the setback will be temporary. Within 30 minutes of the releases of the data the stock and bond markets were essentially unchanged.
More data came in with the April Chicago Purchasing Managers Index coming in beter than expected, but in Europe, their annual inflation rate missed forecasts in rising from their March figures. Nothing of market-moving news out of Ukraine this morning.
Now that all the scheduled data has been reported markets should be quiet now until 2:00 this afternoon when the FOMC policy statement will be released. There isn’t anything in the reports or news this morning that will keep the Fed from continuing its tapering. The Fed will cut another $10B a month from its monthly purchases, taking the monthly Treasury buying to $45B a month from $55B a month of Mortgage Backed Securities (MBS) and long dated treasuries.
Already this morning the MBS market has shown high levels of volatility. It is the same story - the 10yr note is coiling like a pissed off rattler, the narrowing trading range is something to follow carefully; the bulls and bears are balanced now. Once the balance shifts the move will be rapid in the direction of the breakout, the deeper look remains the same; the overwhelming consensus is for rates to increase. So far that view has remained but real money in the real market caps any of the near term comments. We believe rates will eventually increase but price action over the last four months doesn’t agree at the moment.
After the two reports in fifteen minutes the 10yr was unchanged. The very weak GDP, while scary on its surface, the weather in Q1 likely had more negative impact on the economy than what had been thought. Keep in mind that this is the advance report and always is revised a month later when the preliminary report includes more data from the third month of the quarter. We believe when we see the preliminary report in a month the revision will be higher. Since the end of Q1 and the end of weather issues, gains in retail sales, employment and manufacturing at the end of the quarter indicate the setback will be temporary. Within 30 minutes of the releases of the data the stock and bond markets were essentially unchanged.
More data came in with the April Chicago Purchasing Managers Index coming in beter than expected, but in Europe, their annual inflation rate missed forecasts in rising from their March figures. Nothing of market-moving news out of Ukraine this morning.
Now that all the scheduled data has been reported markets should be quiet now until 2:00 this afternoon when the FOMC policy statement will be released. There isn’t anything in the reports or news this morning that will keep the Fed from continuing its tapering. The Fed will cut another $10B a month from its monthly purchases, taking the monthly Treasury buying to $45B a month from $55B a month of Mortgage Backed Securities (MBS) and long dated treasuries.
Already this morning the MBS market has shown high levels of volatility. It is the same story - the 10yr note is coiling like a pissed off rattler, the narrowing trading range is something to follow carefully; the bulls and bears are balanced now. Once the balance shifts the move will be rapid in the direction of the breakout, the deeper look remains the same; the overwhelming consensus is for rates to increase. So far that view has remained but real money in the real market caps any of the near term comments. We believe rates will eventually increase but price action over the last four months doesn’t agree at the moment.
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