MMRecap for Jan. 11
After all the angst regarding the December employment report last week, the markets appeared to be ho-humming the data.
The loss of 85,000 jobs in December kept hope alive that the Fed would not hike interest rates before June; current thinking suggests a rate increase to 0.50% from the present 0% to .25%. This gave Treasuries a small boost in the early going.
The unemployment rate held at 10%, but November losses were revised to show a gain of 4,000 jobs that month, the first increase in almost two years.
The year began with a strong report on manufacturing, as December’s ISM index rose to 55.9 from 53.6, the highest reading in almost four years. Construction spending in November did not fare as well, falling 0.6% — double the expected drop.
Although big ISM numbers put selling pressure on Treasuries, the previous week’s big sell-off lowered bond prices and raised yields, making them attractive buys.
Tuesday’s report on pending home sales in November sparked another bond rally, as sales fell 16%. However, the tax credit situation was cited as a big contributor. This was the first decline after nine months of gains.
A big 1.1% gain in factory orders for November beat expectations, with demand for core capital equipment (business investments) up 3.6%; that didn’t dent bonds and didn’t help stocks. Wall Street sold after the home sales release, but also suffered from profit taking after Monday’s highest close in 15 months. Whatever it was, Treasuries benefitted.
Wednesday’s ISM index on the service sector for December hit 50.1. Although up from the previous 48.7, it missed the expected 51 mark. A couple of reports suggesting few jobs would be lost in December sparked selling in bonds, and they gave back the previous day’s gains.
The minutes from the December Fed meeting revealed mixed opinions on when buying of mortgage-backed securities should stop, but the Committee held fast to the notion that economic recovery will be gradual and inflation tame.
First-time unemployment claims for the week ended Jan. 2 showed an increase of 1,000 to 434,000 — less than expected. The four-week average fell to 450,250, and continued claims dropped to 4.8 million. However, Treasuries lost some ground as nerves regarding the Friday jobs report took hold.
The Mortgage Bankers Association reported that for the week ended Jan. 1 purchase applications rose 3.6%, while refis fell 1.6%.
This week a number of market-movers are due, but they don’t roll in until Thursday. This should provide investors with some time to digest Friday’s employment report.
The U.S. trade balance for November is out Tuesday, but it’s not likely to impact trading. Economists expect the deficit to swell to $34.8 billion from $32.9 billion.
The much-awaited retail sales report for December is due Thursday. Last week good sales numbers from Costco and Target bolstered the Dow, but analysts don’t appear optimistic. They predict December sales will grow 0.4%, versus a 1.3% gain in November. When auto sales are excluded, a 0.3% increase is seen versus 1.2% the previous month. If sales exceed predictions, it will probably be regarded as a victory. Strong retail sales are crucial to economic recovery, but better numbers would pressure Treasuries.
Also on Thursday, initial jobless claims for the week ended Jan. 9 are due and have moved the markets of late. Business inventories for November are expected to be flat, after rising 0.2% the previous month.
Friday could be volatile, starting with the December consumer price index (CPI), which checks inflation at the retail level. But the news should be good. Economists see a 0.2% increase in the CPI versus 0.4% in November. The core rate, which eliminates volatile food and energy prices, could rise 0.1% — up from the previous 0.0%.
Industrial production in December is expected to rise 0.6% — just shy of the previous 0.8% increase, while capacity utilization should edge up. Another survey expected to climb is the NY Empire State index of manufacturing conditions for January. Analysts are looking for an 11.25 reading versus 2.55 in December.
The University of Michigan preliminary consumer confidence survey for January is also expected to rise to 73.8 from 72.5.
These optimistic later reports could spell trouble for Treasuries.
A Real Estate Agents Marketing Tool that You can’t Put A Price On – So we didn’t
Click here for a short video that might Save you Hundreds of Dollars Every Month
Video Introduction to Ron Siegel
Click Here to View the Entire “Planning Your Credit Repair” Series.
Click Here to View the Entire “Planning A Home Purchase” Series.
Ron Siegel counsels clients in all matters Debt: Mortgage, Loss Mitigation / Loan Modification, Debt Settlement, Credit Repair. Reach on Ron Siegel at Ron@MBEhoa.com – 800.306.9130 – www.MBEhoa.com .