Even though overnight news seemed to support an extension of the flight to safety rally, benchmark bonds are weaker this morning and MBS are following the leader...
Recap of Overnight Events...
- Global currency crisis anyone? Well not really, but in the overnight session it was reported that China and Russia will fade out their use of the dollar for bilateral trades instead using their respective currencies.
- S&P cut Ireland's debt rating from A to AA- (that's from memory
of something I read before coffee, so needs confirmation. Anyway, it's a
2 step cut). Not a big surprise considering the EU/IMF bailout, but
Ireland is just a cog in the machine of a broader European sovereign
debt challenge. For many, our first glimpse of the size and potential
destructive power of that machine was during the Greek crisis. This
whole "Euro" thing is a bit of a slippery slope.... Many countries, One
Currency. To oversimplify, that makes the problems of one country a
problem for the entire currency market. Chain's as strong as it's
weakest link.
- With Ireland as a jumping off point, a whole slew of nausea is evident in the some of the other overnight headlines. For starters, once government buying was factored out, Germany had a semi-failure of a bond auction (<1.0 BTC). Speculation is rampant that the other PIIGS countries will face similarly Greek/Irish challenges in the near future (2 down, 3 to go?). This is evident in the overnight widening of CDS spreads--portugal 45 bps wider to 525 and Ireland moved up 25 bps to crack the 600 bps mark.
Recap of Domestic Econ Data...
JOBLESS CLAIMS..........
RTRS-US JOBLESS CLAIMS FELL TO 407,000 NOV 20 WEEK (CONSENSUS 435,000) FROM 441,000 PRIOR WEEK (PREVIOUS 439,000)
RTRS-US JOBLESS CLAIMS LOWEST SINCE WEEK ENDED JULY 19, 2008 (405,000)
RTRS-US JOBLESS CLAIMS 4-WK AVG FELL TO 436,000 NOV 20 WEEK FROM 443,500 PRIOR WEEK (PREVIOUS 443,000)
RTRS-US CONTINUED CLAIMS FELL TO 4.182 MLN (CON. 4.280 MLN) NOV 13 WEEK FROM 4.324 MLN PRIOR WEEK (PREV 4.295 MLN)
RTRS-US INSURED UNEMPLOYMENT RATE FELL TO 3.3 PCT NOV 13 WEEK FROM 3.4 PCT PRIOR WEEK (PREV 3.4 PCT)
DURABLE GOODS...
RTRS-US OCT DURABLES ORDERS -3.3 PCT (CONS. 0.0) VS SEPT +5.0 PCT (PREV +3.5 PCT)
RTRS-U.S. OCT DURABLES EX-TRANSPORTATION -2.7 PCT (CONS +0.6 PCT) VS SEPT +1.3 PCT (PREV -0.4 PCT)
RTRS-U.S. OCT DURABLES EX-DEFENSE -2.1 PCT VS SEPT +4.5 PCT (PREV +3.2 PCT)
RTRS-US OCT NONDEFENSE CAP ORDERS EX-AIRCRAFT -4.5 PCT (CONS +1.0 PCT) VS SEPT +1.9 PCT
RTRS-U.S. OCT GEN. MACHINERY -3.9 PCT, ELECTRICAL EQUIPMENT -3.4 PCT, DEFENSE AIRCRAFT/PARTS -25.1 PCT
RTRS-U.S. OCT DURABLE GOODS ORDERS DROP BIGGEST SINCE JAN 2009, EX-TRANSPORTATION DROP BIGGEST SINCE MARCH 2009
INCOME/OUTLAYS...
RTRS-US OCT PERSONAL SPENDING +0.4 PCT (CONSENSUS +0.5 PCT) VS SEPT +0.3 PCT (PREV +0.2)
RTRS-US OCT PERSONAL INCOME +0.5 PCT (CONS +0.4 PCT) VS SEPT 0.0 PCT (PREV -0.1 PCT)
RTRS-US OCT CORE PCE PRICE INDEX 0.0 PCT (+0.0054; CONS 0.0) VS SEPT 0.0 (PREV 0.0)
RTRS-US OCT OVERALL PCE PRICE INDEX +0.2 PCT (+0.1644) VS SEPT +0.1 PCT (PREV +0.1 PCT)
RTRS-US OCT YEAR-OVER-YEAR PCE PRICE INDEX +1.3 PCT (SEPT +1.4 PCT), CORE RECORD LOW +0.9 PCT (SEPT +1.2 PCT)
RTRS-US OCT REAL CONSUMER SPENDING +0.3 PCT VS SEPT +0.2 PCT (PREV +0.1 PCT)
RTRS-US OCT PERSONAL SAVING RATE 5.7 PCT VS SEPT 5.6 PCT
RTRS-US OCT MKT-BASED PCE PRICE INDEX +0.1 PCT (SEPT +0.1 PCT), CORE -0.1 PCT (SEPT UNCHANGED)
RTRS-US OCT MKT-BASED YEAR-OVER-YEAR PCE PRICE INDEX +1.1 PCT, CORE RECORD LOW +0.7 PCT
CONSUMER SENTIMENT...
RTRS-THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT FINAL NOV 71.6 (CONSENSUS 69.5) VS PRELIMINARY NOV 69.3
RTRS-THOMSON REUTERS/U. OF MICH CURRENT CONDITIONS INDEX FINAL NOV 82.1 (CONSENSUS 79.9) VS PRELIMINARY NOV 79.7
RTRS-THOMSON REUTERS/U. OF MICH CONSUMER EXPECTATIONS INDEX FINAL NOV 64.8 (CONSENSUS 63.0) VS PRELIM NOV 62.7 09:55
RTRS-THOMSON REUTERS/U. OF MICH 12-MONTH ECONOMIC OUTLOOK INDEX FINAL NOVEMBER 71 VS PRELIMINARY NOV 70 09:55
RTRS-THOMSON REUTERS/U. OF MICH 1-YEAR INFLATION OUTLOOK FINAL NOV 3.0 PCT VS PRELIMINARY NOV 3.0 PCT
RTRS-THOMSON REUTERS/U. OF MICH 5-YEAR INFLATION OUTLOOK FINAL NOV 2.8 PCT VS PRELIMINARY NOV 2.8 PCT
RTRS-THOMSON REUTERS/U.MICH CONSUMER SENTIMENT, CURRENT CONDITIONS, EXPECTATIONS INDEXES AT HIGHEST SINCE JUNE 2010
NEW HOME SALES...
RTRS-US OCT SINGLE-FAMILY HOME SALES 283,000 UNIT ANN. RATE (CONS 310,000) VS SEPT 308,000 (PREV 307,000)
RTRS-US OCT SINGLE-FAMILY HOME SALES -8.1 PCT VS SEPT +12.0 PCT (PREV +6.6 PCT)
RTRS-US OCT HOME SALES NORTHEAST -12.1 PCT, MIDWEST -20.4 PCT, SOUTH +3.1 PCT, WEST -23.9 PCT
RTRS-US OCT NEW HOME SUPPLY 8.6 MONTHS' WORTH AT CURRENT PACE VS SEPT 7.9 MONTHS
RTRS-US OCT MEDIAN SALE PRICE $194,900, LOWEST SINCE OCT 2003, -9.4 PCT FROM OCT 2009 ($215,100)
RTRS-US HOMES FOR SALE AT END OF OCT 202,000 UNITS, LOWEST SINCE JUNE 1968, VS SEPT 203,000 UNITS
Plain and Simple: The labor market appears to be stabilizing, this will feed the anti-QEII camp, but we remind of long term structural issues and a major mismatch between labor demanded and labor supplied. Durable Goods Orders fell off and personal spending rose but failed to meet expectations. QEII is creating consumer optimism though, right in time for Christmas! New Home Sales are still stagnant. Seems like the jobless claims report is the cause for all this weakness. Why does the Fed need to buy TSYs if the labor market is stabilizing? Because stabilization does not = sustained growth at a rate fast enough to provide jobs for the 16 million or so unemployed Americans out there.
Market Reaction...
In short, this morning's losses have us retracing back to Friday's price lows/yield highs. And recall that Friday was the first full day of relative calm following the initial convulsions of QE2 buying (or whatever else was helping cause convulsing!).
Here's the overview using our new MBSonMND Dashboard....
We are seeing a complete repricing in the bond market at the moment with weakness really taking flight following 830 econ data. Loan pricing is especially worse today because most lenders did not reprice for the worse yesterday afternoon, making rebate reductions extra painful today.
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