No Big Changes

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Generally flat early this morning but it didn’t stay that way for long; no economic data today that could move markets. At 8:00 the 10 yr was unchanged as were mortgage prices, by 8:30 more selling, the 10 yr at 2.15% +2 bp and 30 yr MBSs -15 bps frm yesterday’s close. European and Asian stock markets better; US futures trade at 8:30 were essentially unchanged. There was one data point this morning although no market reactions; April US trade deficit declined by $40.5B slightly less than what had been thought. Yesterday the May ISM manufacturing index was disappointing in a sense; at 49.0 it is slightly contracting, the employment component also fell below 50 at 48.8. Also weaker, April construction spending, +0.4% with estimates for an increase of 1.0%. The weaker data kept the 10 yr note in check but MBS prices couldn’t manage to improve. The stock market rallied yesterday; these days data isn’t a concern for the equity markets, how long that can last is one big question. Weak data supports the idea the Fed won’t taper soon, strong data supports the idea that the economy is gaining momentum. That condition may change when the May employment report is released on Friday. A strong employment report will add more selling in the bond market, strong stock buying; a weaker employment report will rally the bond market and will very likely send stock indexes down. At 9:30 the DJIA opened +4, NASDAQ +4, S&P unch. 10 yr at 2.15% +2 bp and 30 yr MBS -16 bps. Not much on the news wires today that have much impact. Tomorrow markets will begin to increase importance of the May employment report on Friday. ADP will report their numbers for May private jobs, the forecast is ADP will say jobs increased by 171K. ADP data most times doesn’t reflect what the BLS will report but it does drive markets. Last month ADP reported April private jobs +119K and revised Feb and March numbers to take away 27K originally reported in those months. The reaction to the weak report sent economists and analysts revising their forecasts lower for the BLS data two days later. When the April BLS data hit it set off a firestorm of selling in the interest rate markets that has not abated. BLS reported private jobs in April increased 176K and revised Feb and March increasing another 114K. So, many times ADP data can be well off the mark that the BLS reports; but it does set up potential volatility. The present consensus estimate for May jobs frm the BLS, 167K for non-farm jobs and +178K private jobs; the estimates are almost the same as what BLS reported for April. A couple of Fed speakers today; at 12:30 Fed Governor Sarah Raskin on job creation trends. At 1:30 Esther George KC Fed President speaks on the economy in Sane Fe. Raskin’s speech won’t carry any market interest but George’s may pending how she addresses the QE question. 3.5 June FNMA coupon is close to its key support at 103.00; a close under that level is likely to add more selling. The 10 yr note remains solidly bearish, so far after the huge increase in rates over the last month has not slowed. Technically oversold but the bearishness surpasses a lot of normal market responses to technicals these days.