Rate Markets Quiet This Morning

Rate markets started quietly this morning, as US stock indexes up a little at the open.  Unfortunately, the 10yr is also going up as I write this report at 10:00AM.  Thus far it is at 1.86% from an open of 1.83%.  This week is full of key data with the big report on Friday, the April employment data.  During the week, we will have both April ISM indexes (manufacturing and services), March construction spending, March factory orders and a number of regional Fed presidents after having to stay quiet the last week in the FOMC meeting.

In Europe and Japan manufacturing reports dominated overnight economic news. In Europe the manufacturing PMI index was mix from a poor reading in Germany, but higher than last month’s data, but Japan also came in lower, but again positive than last month.  This morning Atlanta Fed Pres. Dennis Lockhart making opening remarks at Atlanta Fed's annual Financial Markets Conference, nothing out yet.

This morning the April PMI manufacturing index came in lower than expected, but there was no immediate reaction to the data.  A little later, we saw April ISM manufacturing index coming in lower than anticipated.  March construction spending also came in lower, but the revision to the February data was robust that offset the number in March.  There is no more data today, just more Fedspeak – and you know my thoughts on their comments.

This Week’s Calendar: Tuesday, April auto and truck sales; Wednesday, Weekly MBA mortgage apps, April ADP private jobs (expected at +193K), Q1 prelim productivity, Q1 unit labor costs, March US trade deficit (expected at -$41.4B from -$47.10B in Feb), April ISM services sector index, Weekly crude oil inventories; Thursday, Weekly jobless claims (262K +5K); and the big day on Friday, April employment data (unemployment rate 4.9% from 5.0%; NPF jobs +200K, private jobs +195K, avg. hourly earnings +0.3%, labor participation rate 63% unchanged from March).  The day will end with the March consumer credit report.

Last week the advance Q1 GDP at +0.5% was weaker than economists’ estimates but not much of a factor - usually the advance report is revised higher when the preliminary report is released a month later, and it is Q1 that over the last few years has usually been weak - weather and generally less consumer spending after the holiday spending season. Recently though March retail spending was less robust and March personal spending last Friday was lower than thought while personal income increased 0.4% better than expected.  What we are seeing is that people are saving more.

This week has a lot of data to digest. The techs are now neutral in the near term. Not bearish not outright bullish either. I have been floating recently, a little risky but have seen some better prices. This morning the MBS prices were holding after the morning report on the better construction spending, I am seeing the prices decline a little.  Now at 10:30AM, we are down 9BPS on the MBSs and the 10yr has not moved since I started this report.  Trading remains very thin causing wide price swings. The interest rate markets trying to improve but no major buying, the recent improvements last week are more position squaring rather than a lot of new buying.

I will remain with a STRONG Caution, but lock if you are within 15 days of closing.