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MMRecap for March 8
The benchmark 10-year note barely moved the first four days of last week. Uncertainty about what the Fed will do, a mixed group of economic reports, conflicting signals about the direction of the economy and caution prior to the February employment left the 10-year yield, which moves in the opposite direction of price, right around 3.60% — until Friday, that is.
The jobs report showed 36,000 workers dropped from nonfarm payrolls last month — far less than expected but more than the 20,000 lost in January. The unemployment rate held at 9.7%, but many had expected an increase.
Because this report was better than predicted, selling in Treasuries was aggressive, sending prices down and yields to their highest levels in more than a month. Friday’s report could indicate that the employment picture is improving, which would reduce the need for risk-free investments. This, of course, would push yields up.
March began with the ISM index on manufacturing for February. It fell to 56.5 from 58.4, with declines in new orders and productivity, but employment rose to 56.1 from 53.3. Separately, construction spending in January fell 0.6%, an improvement over the previous 1.2% decline.
Personal spending in January rose 0.5%, while income edged up 0.1%, with the amount spent on goods rising almost 1%. The core rate, a key inflation indicator, was flat. Also in play was word of an impending bailout package that would ease Greece’s debt problems and erase the need for some safe-haven buying.
No releases were scheduled on Tuesday, but Wednesday’s better-than-expected ISM reading on the service sector put some pressure on Treasuries. It rose to 53 — its highest level since December 2007. Most components posted gains, except for ‘prices paid,’ which was more good news re inflation.
The Fed beige book, which looks at the economy in the nation’s 12 federal districts, showed the economy improving in nine of those districts. Lending remains tight, however, and employment was showing few signs of improvement.
Thursday’s first-time unemployment claims for the week ended Feb. 27 fell unexpectedly by 29,000 to 469,000, while continuing claims dropped to 4.5 million. This ignited some selling, but a 7.6% decline in pending home sales in January brought the buyers back. A 1.0% increase was expected.
Revised 4thquarter productivity rose to 6.9% from 6.2%, while unit labor costs were revised downward to 5.9% from -4.4%. High productivity without high costs is another sign that inflation is not a present threat. Also, factory orders in January rose 1.7% from 1.5% in December.
Lower mortgage rates during the week ended Feb. 26 lit a fire under home buyers and refinancers, according to the Mortgage Bankers Association. Purchase applications rose 11.7%, while refis were up a whopping 17.2%.
This week doesn’t get interesting until Friday, except for Thursday’s first-time jobless claims for the week ended March 6. And who knows which way that one will go?
The U.S. trade deficit for January is also due, but it is a nonfactor when it comes influencing the markets. The same holds true for January’s wholesale inventories. They’re predicted to rise 0.2% from -0.8% in December, but the release will likely go unnoticed.
Friday has the week’s biggest report — retail sales for February. Analysts expect sales to fall 0.1% versus a 0.5% January gain. When autos are excluded, sales should be flat as opposed to the previous 0.6% gain. Treasuries would welcome this because the economy will not move forward without the support of consumer spending.
It’s possible that predictions could be revised, however. The extraordinary sales figures posted by Ford and GM last Tuesday, and Thursday’s healthy reports on same-store-sales by major retailers could change these numbers. But retail sales encompass more than car sales and how well the malls are doing.
The preliminary consumer sentiment report for March from Reuters/The University of Michigan is also due, but analysts are expecting the smallest possible increase. They’re saying it should rise to 73.7 from 73.6.
The final report of the week is business inventories for January. They are expected to increase by 0.1% from a 0.2% decline in December. T his report will be ignored, with most of the effort geared toward dissecting retail sales data.
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