Good evening,
The positive rate ride continues as MBS’s continue their trajectory towards higher prices / lower rates. Three trading days on the books this year and all have set 52 week highs! It’s plausible that a good ADP Employment number tomorrow could pause not only the existing equity sell off but also the securities rally. At 6:15 AM MT tomorrow, my eyes will be focused on the ADP release.
Global Concerns Weigh on U.S. Markets
by Dan Stimpson
The Dow closed Monday down 331 points and the 10-year Treasury yield fell almost 8 bps to 2.03%, the lowest yield since May 2013. This morning the 10-year Treasury is trading at 1.97%. The 30 year Treasury yield of 2.60% is 14 bps below the all-time low reached in August 2012, and this morning is trading at 2.54%. The difference between the yields on 2-year notes and 30-year bonds is the lowest since January 2009 impacted by slowing global inflation driving the long end of the curve and the expectation of rising rates by the Federal Reserve driving the short end. The chance of a Fed rate increase by the September 2015 meeting is currently 63%. The yield on 2-year notes was virtually unchanged Monday.
German inflation slowed to the weakest level in more than five years, a sign that prices in Europe are declining bolstering the case for more stimulus from the ECB. Additional inflation data on Wednesday may push the ECB to begin sovereign-bond purchases when they meet later this month. ECB officials are debating whether to expand stimulus to including buying government bonds, similar to multiple rounds of QE employed by the Federal Reserve, as plunging oil prices increase the risk of deflation in Europe. Germany, the strongest country in Europe, has been the strongest opponent against expanding stimulus and QE.
The economic calendar was light in the U.S. yesterday. Auto sales came in slightly below expectations totaling 16.80M units and 13.46M units in domestic sales, but automakers reported strong U.S. sales, boosted by falling gasoline prices. However, executives and analysts cautioned that growth would slow in 2015. Sales in December rose almost 11 percent to more than 1.5 million vehicles, according to research firm Autodata, a leading indicator of consumer spending. In December, sales of pickup trucks and large SUVs surged as sales of GM pickup trucks rose 35 percent, driven higher by lower gas prices. Gas prices in the U.S. are 34 percent lower than a year ago, and in much of the country are less than $2 per gallon. Kelley Blue Book reported the average transaction price for a new vehicle sold in the U.S. market in December was a record $34,367, up 2.5 percent from a year ago.
The economic calendar today in the U.S. is highlighted by the ISM non-manufacturing index, which is expected fall from 59.3 to 58.0 in December.
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Economic Calendar
Date/Time(Central)
|
Indicator
|
Period
|
Est.
|
Actual
|
Prior
|
Revised
|
1/6/2015 9:00 AM
|
Factory Orders
|
NOV
|
-0.5%
|
-0.7%
| ||
1/6/2015 9:00 AM
|
ISM Non-Manf. Composite
|
DEC
|
58.0
|
59.3
| ||
1/7/2015 6:00 AM
|
MBA Mortgage Apps.
|
2-Jan
|
--
|
0.9%
| ||
1/7/2015 7:15 AM
|
ADP Employment Change
|
DEC
|
226K
|
208K
| ||
1/7/2015 7:30 AM
|
Trade Balance
|
NOV
|
-$42.0B
|
-$43.4B
| ||
1/8/2015 7:30 AM
|
Initial Jobless Claims
|
3-Jan
|
290K
|
298K
| ||
1/8/2015 7:30 AM
|
Continuing Jobless Claims
|
27-Dec
|
2360K
|
2353K
| ||
1/8/2015 2:00 PM
|
Consumer Credit
|
NOV
|
$15.000B
|
$13.226B
| ||
1/9/2015 7:30 AM
|
Change in Nonfarm Payrolls
|
DEC
|
243K
|
321K
| ||
1/9/2015 7:30 AM
|
Change in Manufact. Payrolls
|
DEC
|
15K
|
28K
| ||
1/9/2015 7:30 AM
|
Unemployment Rate
|
DEC
|
5.7%
|
5.8%
| ||
1/9/2015 7:30 AM
|
Avg. Hourly Earnings (MoM)
|
DEC
|
0.2%
|
0.4%
| ||
1/9/2015 9:00 AM
|
Wholesale Inventories
|
NOV
|
0.3%
|
0.4%
| ||
1/9/2015 9:00 AM
|
Wholesale Trade
|
NOV
|
0.0%
|
0.2%
|
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