Market Snapshot 03/15/2013

European stocks weaker this morning, in early US futures trading markets were relatively unchanged, the 10 yr note -3/32 at 2.04% at 8:30. 8:30 data didn’t move markets; Feb CPI in line with forecasts +0.7% overall, and ex-food and energy +0.2%. Inflation is no problem and attracts little attention in markets. The Empire State manufacturing index was expected at 10, as reported 9.24 frm 10.4 in Feb. Neither data had any immediate impact on markets. Overall CPI at +0.7% was a little higher than thought but not a concern, the increase to 0.7% was mainly due to increases in gasoline prices in Feb; since Feb gas prices have moderated. Gasoline prices climbed 9.1% last month, the biggest advance since June 2009. That drove a 5.4% gain in overall energy costs. The core rate +0.2%, is where the focus always is and it was tame and in line with estimates. The Empire State report was a little disappointing but still held above zero; new orders index fell to 8.2 frm 13.3, the price index at 25.8 frm 26.3 (good) and the employment index declined to 3.2 frm 8.1. If the stock market were not so bullish as it is these days, the Empire State would have pushed indexes lower.

At 9:15 Feb industrial production was thought to be up 0.5%, it increased 0.7% the most in three months; January production was revised to unchanged. Frm -0.1%. Manufacturing which accounts for 75% of industrial output increased 0.8%, the 3^rd gain in the last four months. Feb factory usage was expect at 77.5%, as reported use of factories was at 79.6% the best since Mar 2008.

At 9:30 the DJIA opened -27, NASDAQ +1, S&P -2; 10 yr note unchanged at 2.03% and 30 yr MBS prices also unchanged.

At 9:55 the last data this week, the U. of Michigan mid-month consumer sentiment index was forecast at 77.5, as reported the index fell to 71.8, a huge decline and the lowest index reading since Dec 2011 when it fell to 69.3. Until this report the data this morning was, on balance, better than expected but didn’t get any support in markets. The soft sentiment index however triggered additional selling in the equity market and jumped the 10 yr back to 2.00% -3 bp on the day with 30 yr MBS prices up 10 basis points in price frm 9:30 levels.

Yesterday the 30 stocks in the DJIA index made another new high, the 10^th in a row for the index, yet the broader market as measured by the more significant S&P 500 index still can’t push to a new high. Yesterday the index closed at 1563.23, the high close is 1565.15, so close but not even the most bullish could generate enough interest to break through. This morning the stronger Feb industrial production and factory use were much better than expectations but didn’t influence the markets so far. Today options expire that at times can increase volatility through the day.

We still have a bearish interest rate market based on all of our technical models, however the strength of the bearishness has waned in the last week after rates exploded last Friday on the Feb employment report. The level to watch now is 2.06% on the 10 yr note, a close above it will imply more increases. On the other side, there is very strong resistance at 1.95% for the note. Next week the FOMC meets on Tuesday and Wednesday, after the strong Feb employment data and other better than expected reports on the economy what will the Fed think when the FOMC policy statement is released Wednesday afternoon? We expect trade early next week to be rather flat ahead of the FOMC meeting.

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