Stocks are relatively flat and Mortgage Bonds are lower to start the day.
With hotter inflation data over the last few months, it’s likely going to take a weaker labor market for the Fed to want to cut rates. But the Jobs data we have been getting has been confusing – The BLS is reporting that there is a very low level of initial claims and that we are seeing very strong headline job growth, yet other reports are painting a different picture.
Some of the smartest minds out there in the economy have started to question the reliability of the BLS figures, particularly Initial Jobless Claims, as it has been exactly the same number of 212,000 for five of the last six weeks. Here is a quote from Jim Bianco, who concisely breaks down why this is so odd:
“Initial Jobless Claims was reported at 212,000 last week. How is this statistically possible? Five of the last six weeks, the exact same number. Effectively the same number in the last 11 weeks, except for the holiday weeks (President's Day and Easter). --- Consider The US is a $28 trillion economy. It has 160 million workers. Initial claims for unemployment insurance are state programs, with 50 state rules, hundreds of offices, and 50 websites to file. Weather, seasonality, holidays, and economic vibrations drive the number of people filing claims from week to week. Yet this measure is so stable that it does not vary by even 1,000 applications a week. Just the number of applications incorrectly filed out every week should cause it to vary more than this.”
Another report not jiving with the BLS figures came from S&P Global yesterday, showing that the services employment Index fell almost four points to 47.3 in April, in contraction and taking out the low we saw back in 2019. We hope that the Jobs data from the BLS starts to show some weakness, as that would be the ticket to pressuring the Fed to cut rates.
Treasury Program
The US Treasury announced that they will be performing buybacks in a matter of days to make the Treasury market more liquid and resilient. We know there has been a ton of paper coming to market because of the debt we continue to amass as a country. While it’s unclear as to the level of the buybacks, this is a good thing for rates as the Treasury will be absorbing some of the supply coming to market.
This also comes ahead of the Fed potentially slowing down their balance sheet reduction. Powell said that “fairly soon” the Fed would taper their balance sheet reduction, which could mean the May 1 meeting or June meeting…but we estimate that this would mean they will start to buy back $30B per month in Treasuries, also absorbing a lot of the supply out there. This too would be very good for rates.
And speaking of Treasuries, there is a ton being auctioned off this week. Yesterday’s 2-year Auction was pretty good, as our Bill Hagmann rated it a “B-“. Later this afternoon at 1:00pm ET there will be a record high $70B 5-year Auction, which could impact the market, depending on the level of demand.
Durable Goods Orders
Durable Goods Orders in March rose 2.6%, which was in line with estimates. Last month’s reading of 1.4% was cut in half 0.7%, tempering the gain.
Clearly a lot of the gain was due to aircraft orders, because when you strip out transportation, Durable Goods Orders were only up 0.2%, which was lower than anticipated.
Core Durable Goods also rose 0.2%, as expected, but last month’s figure was revised lower by 0.3%.The entire first quarter has only showed a three tenths increase, and year over year orders are down 0.8%...showing that this index has flatlined, capital spending is tepid, and it points to a slower economy…at least from this metric.
Mortgage Applications
The MBA released their Mortgage Application data for last week, showing that purchases decreased 1% last week. Purchases are now down 15% from this time last year.
Refinances fell 6% last week and are up 3% from last year. Interest rates rose from 7.13% to 7.24%. Rates are about 0.7% higher than this time last year.
Technical Analysis
Mortgage Bonds tested overhead resistance at 99.647 yesterday, but were unable to close above it and are now being pushed lower. Bonds are in a very wide range with the next floor of support roughly 50bp beneath present levels, so we must remain on guard.
The 10-year has risen 7bp this morning and is trading at 4.668%, not too far from an important ceiling of resistance at 4.694% - which also is the high for the year.
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