Bad Day for the Market

Prior to 8:30 the 10 yr note was back above 1.70% to 1.71% +1 bp frm yesterday’s close. The stock market had a bad day yesterday, this morning the indexes started better. At 8:30 weekly jobless claims were expected about unchanged, as reported claims increased 4K to 352K; close enough to estimates and little initial reaction to the data. Two states, Kentucky and California, were estimated by the Labor Dept. The steady claims this morning have increased chatter that the labor market is stabilizing; quite a stretch after the March employment report showed very little increase in jobs and the past three weeks of volatile swings in weekly claims. The four-week moving average, a less volatile measure than the weekly figures, rose to 361,250 last week from 358,500. Claims figures jumped in late March and then retreated as the government had difficulty adjusting claims for the Easter and school spring break holidays that occurred a little earlier than usual this year. At 9:30 the DJIA opened +4, NASDAQ +7, S&P +2; the 10 yr at 1.70% and 30 yr MBSs +3 bps. The open was weaker than in pre-open trading earlier this morning. Over the pond in Germany; German lawmakers approved a rescue for Cyprus as Finance Minister Wolfgang Schaeuble warned that refusing aid to a fifth crisis-ravaged state risked triggering a sovereign default and contagion to other euro nations. “We must avoid turning the problems in Cyprus into new problems for other euro countries,” Schaeuble told lawmakers in a speech before the vote. “Cyprus is in a dramatic situation. If we don’t help Cyprus, then Cyprus inevitably faces sovereign default.” Germany also approved extending aid terms for Ireland and Portugal. So far Germany has committed 211B euros to keep the currency union together. Two key reports at 10:00; the April Philadelphia Fed business index and March leading economic indicators. The Philly Fed index was expected at 3.3 frm 2.0, as reported the index was up just 1.3%. No matter how we look at it the index is extremely weak even though still holding above zero. March leading economic indicators, another soft report; expected up 0.2%, the index fell to -0.1% after increasing 0.5% in February. How much more weaker than thought data will it take to drive investors to selling equities? Much of the data for March has been weaker than forecasts yet equity markets, although not rallying stocks are not falling much either. The 10 yr note at 1.69% after the 10:00 data still stalled. The 10 yr note, driver for mortgage rates, has stalled at 1.70% levels; unable to break through on a closing basis. Yesterday at mid-day the note yield dropped to 1.67% but was unable to hold it and closed at 1.70%. Technically everything continues to point to lower rates but until there is a stronger belief that the stock market is actually going to decline rates won’t likely fall from present levels. Recent activity in the US and global equity markets is suggesting that a correction in stocks is at hand. That said, numerous times in the past couple of months it looked like stocks would back off only to drive higher almost daily.

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