Interest rates early this morning started weaker but quickly climbed to unchanged by 8:30; the US stock indexes at 8:30 were pointing to a better open at 9:30. Stocks currently exhibiting an increase in volatility, swinging in wide ranges but with no real sustained trend as many still looking for a major correction. The bond and mortgage markets barely changing from day to day over the last couple of weeks. The 10 yr note in a 6 bp range from 1.75% to 1.69%. European stocks rose, rebounding from the biggest weekly drop in five months, as Italy elected a president and the Group of 20 refrained from opposing the Bank of Japan’s stimulus policies. Asian shares and U.S. index futures also advanced. BOJ Governor Haruhiko Kuroda emerged from the G-20 meeting saying he was encouraged to press ahead with the campaign to defeat deflation. The central bank meets this week after pledging April 4 to double the monetary base in two years.
At 9:30 the DJIA opened +15 after trading +50 earlier, NASDAQ +9, S&P +2. 10 yr note at 1.69% -1 bp after trading at 1.73% earlier; 30 yr MBSs +6 bp after being down 6 bp at 9:00 am.
At 10:00 this morning the first of three housing data points this week; March existing home sales were thought to be up 1.0% frm Feb at 5.03 mil units (annualized). As reported sales decline 0.6% to 4.90 mil units, a big miss with units unable to break above 5.0 mil. Feb sales were revised lower, the median sales price at $184,300 up 11.8% yr/yr. Inventories up 1.6% but down 17% yr/yr. Based on sales there is a 4.7 month supply. Homes were not coming on the market in March, just 30K new listings according to NAR. After starting stronger earlier this morning the index had been sliding since then, at 9:30 the index opened +15; after the existing home sales ell the DJIA traded -44 in yet another session that shows volatility. (see below for 10:05 levels.
Beginning tomorrow Treasury will auction $99B of 2s, 5s and 7 yr notes this week. Not counting weekly bill auctions, Treasury is borrowing $165B a month from 2s through 30s funding the deficit.
Earlier this morning the Chicago Fed National Activity Index was worse than expected, the index fell to -0.23 frm +0.44 in Feb; the 3 month average -0.1 frm +0.09. A negative reading indicates that national economic activity is below its historical trend. The biggest change in March is in production indicators which still contributed to growth, at plus 0.01, but well down from February's plus 0.47. Helping to pull the index into negative ground during March is employment, at minus 0.06 vs. February's plus 0.31. Sales/orders/inventories fell to minus 0.02 from plus 0.13. Consumption & housing pulled down the index down the most, at minus 0.14 for a second straight month. The Chicago Fed National Activity Index is a monthly index designed to better gauge overall economic activity and inflationary pressure.
For two weeks the bond and mortgage markets have been relatively unchanged, after the nice and quick decline in rates frm mid-March over the last two weeks there is no evidence rates will move much. Over that time frame the stock market measured by the three key indexes has declined, but no real push lower for rates. Equally investors are willing to hold some treasuries as a hedge against the potential of a sustained fall in stocks. We believe the Fed will continue its QE for most of the rest of the year, however Fed officials are talking about how to handle it when it is time for exiting. That they are openly talking has opened a lot of debate, but in the end most still believe the Fed isn’t close to winding down the QE. As long as the Fed continues to buy $85B a month in treasuries and MBSs and re-invest the pay downs from its large MBS holdings, interest rates are not likely to increase much on any selling. The key is 1.75% for the 10, if it closes above it we would expect a move up a little more. Interest rates around the world are trending lower----slowly.
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