Bonds are backing up a bit while and equity futures point modestly lower on the last full trading trading day of the year.
Seventy minutes before the opening bell, S&P 500 futures are 1.50 point lower at 1,254.25 and Dow futures are 8 points lower at 11,524. The 10 year Treasury note is -7/32 at 93-21 yielding 3.386%. The 2s/10s curve is 1bp steeper at 273bps wide. The FNCL 4.5 MBS coupon is -1/32 at 102-04. Yield spreads are tighter on the open.
The equity market is poised to finish 2010 on a positive note. Yesterday, before a last-hour sell-off, the Dow touched the 11,600 level for the first time since September 2008. Meantime, the S&P has climbed 6.71% since Dec. 1 and 12.97% since the start of the year.
Just ahead of today’s new data, economists at Deutsche Bank released a note saying the sentiment for early 2011 forecasting is positive.
“We sense that labor momentum is building based on a number of factors, including improvement in the employment components of various production surveys, the pronounced downtrend in unemployment claims over the past several weeks and also the continued strength of tax receipts,” they wrote.
“In December, tax receipt collections were up approximately 7% year-on-year, a healthy pace of growth,” they added, noting tax receipts have trended sharply higher for most of 2010.
“This is impressive, as the year-on-year comparisons face an increasingly high hurdle. The latest Q3 GDP data showed that real personal income excluding current transfer receipts was up 1.3% year-over-year, the first such positive gain after eight consecutive quarters of year-on-year declines stretching back to Q3 of 2008. Coupled with what we are seeing in tax receipts, this points to faster consumer spending growth in the near term.”
Key Events Today:
8:30 ― Initial Jobless Claims are anticipated to remain stable at 420k in the week ending Dec. 25. The four-week average last rose 2,500 to 426,000, breaking a six-week downward streak. That average is nearly 18k lower than the November payroll survey week, suggesting that the December employment report could be significantly stronger.
Economists at BBVA noted that initial claims remain elevated, but they are significantly lower than the March 2009 peak of 651k.
9:45 ― The Chicago Business Barometer climbed to 62.5 in November from 60.6 a month before, beating expectations as new orders jumped to 67.2. Any score above 50 indicates expansion. To end the year, the survey is expected to hold steady at 62.5, which would mark the fourth straight month above 60. It’s also the best score since April.
“The index has increased for the last fourteenth months,” said economists at BBVA. “The report indicates that production and new orders reached its highest level since February 2005 and 2007, respectively. While employment index marked a sixth month of growth, index for inventories dropped below 50 indicating contraction in employment in the region.”
10:00 ― The Pending Home Sales Index, which looks at mortgage contracts that have been signed but not finalized, thereby offering a look-ahead to the number of existing home sales, is expected to continue rising in November. The last index rose 10.4%, one of the largest monthly gains ever and a pace not expected to be repeated this month. Existing home sales correspondingly rose by 5.6% in November to an annualized rate of 4.68 million units.
Still, pending sales are down 22.4% from a year ago and activity remains depressed, said economists at Deutsche Bank.
“The outlook on housing will depend on the trajectory of the labor market,” they added. “If our forecast for an 8% unemployment rate by the end of next year proves correct, we are likely to see the worst of the housing market collapse behind us.”
No Treasury Auctions
No Fed QEII Treasury coupon operations