Market View 11/15/12

Thursday, November 15, 2012 - Article by: Kevin Vanic - Movement Mortgage Inc. -

Prior to 8:30 data this morning the stock indexes were trying to hold slight gains; after the data the DJIA futures rolled over and at 8:45 -40. Weekly jobless claims shot up 78K to 439K, due primarily on the impact of Sandy as several states in the path of the carnage reported large increases. We noted yesterday that the claims data today would likely be distorted and should not be taken at face value; nevertheless stock indexes, already in full retreat recently, did roll over.

Other data at 8:30; Oct CPI increased 0.1% overall and with food and energy excluded increased 0.2%, a little higher than 0.1 expected for the core. The Nov NY Empire State manufacturing index was expected at -8.5 frm -6.2 ion Oct; the index actually improved to -5.2; still under zero and indicating contraction. Power outages and destruction in New Jersey and New York from Sandy placed a temporary burden on the region's factories, which have been challenged by a recession in Europe and slower Asian economies. The Empire State covers NY, northern NJ and southern CT. It isn't fresh news, but Europe has now officially fallen back into recession, the second in the last four years. GDP in the 17-nation bloc slipped 0.1% in the third quarter after a 0.2% decline in the previous three months, the European Union's statistics office in Luxembourg said today. France and Germany did grow but not enough to out-weigh the weakness in the other 15 countries. Most recent data from Europe had implied that the EU would fall back into recession as defined; two consecutive quarters of declining growth. The annual inflation rate in the euro area dropped to 2.5% annual in October from 2.6% the month before, the statistics office said in a separate report today. MBS 30 yr price at 9:00 -10 bp frm yesterday's close, the 10 yr note +2 bp to 1.61%, the S&P futures unch and the DJIA futures index -19. At 9:30 the DJIA opened -11, NASDAQ unch, S&P +1, the 10 yr note 1.61% +2 bp and 30 yr MBSs President Obama at his press conference yesterday reiterated his stance that Congress should pass an extension of the Bush tax cuts for incomes under $200K ($250K for couples) while letting the tax cuts expire for those earning more than that; there is nothing new in his desire. Also hanging over investors, the possibility of increased capital gains taxes next year. There still has been little said from either political camp about the expiring payroll tax cut, neither party wants to extend it according to reports from the WSJ a couple of weeks ago. The final data this morning; at 10:00 the Nov Philadelphia Fed business index, expected at 4.0 frm 5.7 in October, the index declined to -10.7. Last month the index was on the plus side, the first in five months, now back below and suggesting contraction. Sandy likely has added to the decline in the index. The initial reaction pushed stock indexes lower but not much; the 10 yr note reacted with the yield declining to 1.59%, unchanged on the day. MBS prices are slightly lower at 10:00 than at 9:30. So far this week there has been little change in interest rates; the 10 yr note confined in a 3 basis point yield range and up against solid resistance at the 1.60% level. Unable to break below it even as the equity markets have been it hard again this week. Safety moves out of stocks have not filtered into treasuries in any degree. Technically the 10 yr and MBSs are still holding bullish trends but both have stalled. The Fed is going to continue to support the long end of curve (mortgages) even after Operation Twist expires at the end of Dec; most likely the Fed will announce it will increase purchases of MBSs and treasuries without selling equivalent amounts of short dated maturities that has been Operation Twist.