Bond markets began the day in moderately weaker territory after Asian and European sessions took yields higher overnight. But the onset of the domestic session was largely a supportive affair with the weakest points of the day arriving in the first half hour. Both MBS and Treasuries have been mostly rallying since then while stocks have fallen to their lowest levels since July 26th. Some of this is attributable to much weaker than expected morning data. Economists missed the mark on baking in the effects of Hurricane Sandy on Jobless Claims and the Philly Fed Index. Escalating tensions in the Middle East are likely adding to the "risk-off" trade.
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ECON: Sandy's Influence Evident In Weaker Philly Fed Index
- Business Conditions -10.7 vs +2.0 consensus, +5.7 Oct
- New Orders -4.6 vs -0.6 Oct
- Employment -6.8 vs -10.7 Oct
- Philly Fed says "influence of Storm Sandy evident in firm's responses
"Firms responding to the November Business Outlook Survey reported declines in business activity this month following the disruptive effects of Hurricane Sandy on the region. The survey’s indicators for general activity, which had shown improvement in October, fell back into negative territory this month. Firms reported slight declines in shipments, employment, and hours worked. Indicators for the firms’ expectations over the next six months were near their levels in the previous month, but expectations for future employment and capital spending have weakened in the last two months."
Bond Markets Fighting To Hold Ground As Europe Pushes Risk-On Trade
The overnight session was mostly slow, but mostly negative for bond markets. GDP for the entire Eurozone fell 0.1 pct though France and Germany managed 0.2 pct increases. That was enough to fuel a risk-on bid in European hours in addition to some big trades that were unrelated--at least in timing--to any reported data or events.
All that aside, 10yr yields traded inside yesterday's range all morning and have been holding ground so far in the domestic session. MBS walked in the door several ticks weaker than yesterday's latest levels, but have since battled back to unchanged levels.
Much weaker than expected Jobless Claims numbers made the morning interesting stateside as mega-storm Sandy apparently had a much bigger effect than economists predicted, causing the biggest week-over-week increase since 2005 and the highest outright level since April 2011.
Bond markets rallied on the data, but faced two countercurrents. The first was from the data itself, which was such a jump, and so far from expectations that it makes it hard to filter out organic economic weakness vs temporary impact from Hurricane Sandy.
Then there's Europe... European news and events continue to provide a nagging, persistent push in a "risk-on" direction this morning. It's nothing major, but it is pushing back on the post-claims weakness after comments from Spain's Economy Minister saying that Spain has no need for money from the IMF. German Bunds spiked on the headline and the Euro rose to its highest levels in a week.
While not having any major effects on bond market trading at home, the risk-on moves don't help yields move lower. Stocks are moving higher after the 9:30 open as well, but not triumphantly so with S&P futures about 5 points higher than yesterday's close. 10yr yields are up just under 2 bps at 1.608. Fannie 3.0 MBS are up 1 tick at 104-26. Philly Fed data is coming up at 10am, and given the bigger than expected hit to Claims, one might reasonably expect a bigger jump there as well.
ECON: Consumer Prices Roughly As Expected
- CPI +0.1 vs 0.1 consensus
- Core CPI + 0.2 vs +0.1 consensus
- Officials says "virtually no impact" from Sandy
The Consumer Price Index for All Urban Consumers (CPI-U) increased
0.1 percent in October on a seasonally adjusted basis, the U.S.
Bureau of Labor Statistics reported today. Over the last 12 months,
the all items index increased 2.2 percent before seasonal adjustment.
The shelter index increased 0.3 percent, its largest increase since
March 2008, and accounted for over half of the seasonally adjusted
all items increase. The index for all items less food and energy rose
0.2 percent, as the rise in the shelter index and increases in the
indexes for apparel and airline fare more than offset declines in the
indexes for used cars and trucks, new vehicles, and recreation.
The food index increased 0.2 percent in October with the index for
food at home rising 0.3 percent, its largest increase since September
2011. The energy index, which had risen sharply in August and
September, declined slightly in October. Major energy component
indexes were mixed, with declines in the indexes for gasoline and
natural gas more than offsetting increases in the indexes for
electricity and fuel oil.
The 12-month change in the index for all items was 2.2 percent in
October, an increase from the September figure of 2.0 percent. The 12-
month change in the index for all items less food and energy remained
at 2.0 percent. The food index rose 1.7 percent over the last 12
months, and the energy index increased 4.0 percent.
ECON: Jobless Claims Highest Since 2005, Labor Dept. Cites Sandy
- Claims 439k vs 375k Consensus
- Highest since April 2011
- Biggest increase since Sept 2005
- Increases mostly in mid/north-Atlantic region
In the week ending November 10, the advance figure for seasonally adjusted initial claims was 439,000, an increase of 78,000 from the previous week's revised figure of 361,000. The 4-week moving average was 383,750, an increase of 11,750 from the previous week's revised average of 372,000.
The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending November 3, an increase of 0.1 percentage point from the prior week's revised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 3 was 3,334,000, an increase of 171,000 from the preceding week's revised level of 3,163,000. The 4-week moving average was 3,254,500, an increase of 17,750 from the preceding week's revised average of 3,236,750.
Live Chat Featured Comments
Matthew Graham : "http://www.phil.frb.org/research-and-data/regional-economy/business-outlook-survey/2012/bos1112.cfm they even dedicate a chart to a storm-related question."
Andrew Horowitz : "woah, MG when was that report gathered pre or post "
Matthew Graham : "RTRS- PHILADELPHIA FED EMPLOYMENT INDEX NOVEMBER -6.8 VS OCT -10.7 "
Matthew Graham : "RTRS- PHILADELPHIA FED NEW ORDERS INDEX NOVEMBER -4.6 VS OCT -0.6 "
Matthew Graham : "RTRS- PHILADELPHIA FED BUSINESS CONDITIONS NOVEMBER -10.7 (CONSENSUS 2.0) VS OCT 5.7 "
Gus Floropoulos : "nonetheless, if its hurricane related, then it's not a faulty economy, therefore market reaction is timid"
Gus Floropoulos : "VB is right, it's somewhat unfathomable that economists couldn't predict this one"
Matthew Graham : "today's claims are part of continuing claims though, so it suffers from the same potential distortion"
Jeff Anderson : "Gm, all. What's the level of the continuing claims say? No one is really hiring too much? That report is people u/e over 6 months and they fall off the report after 99 weeks? "
Andrew Horowitz : "you can't forecast the effects of storms, for the next 3-4 weeks the weekly numbers will be skewed and don't be surprised if the actually NFP report is trash as well"
Victor Burek : "didnt these economists know about the storm and factor that into what they estimated?"
Victor Burek : "why didnt economists who set expectations?"
Andrew Horowitz : "most people and i say mst people realize the dislocation"
Matthew Graham : "it's such a jump that it forces you to question it"
Andrew Horowitz : "nah, throw it in the trash Vic"
Victor Burek : "still much higher than anyone thought"
Andrew Horowitz : "and you need money"
B-C : "you find a way when you have no job Selwin"
Ira Selwin : "People didn't have power or gas though, how could people even go anywhere or online to collect"
Andrew Horowitz : "no people collected U/E for jobs that couldn't open"
Matthew Graham : "RTRS- US CONTINUED CLAIMS ROSE TO 3.334 MLN, HIGHEST SINCE JULY 28, 2008, (CONS. 3.210 MLN) NOV 3 WEEK FROM 3.163 MLN PRIOR WEEK (PREV 3.127 MLN) "
Matthew Graham : "RTRS - LABOR DEPT OFFICIAL SAYS INCREASES IN CLAIMS MOSTLY IN MID-, NORTH ATLANTIC REGIONS FOLLOWING SUPERSTORM SANDY "
Matthew Graham : "RTRS- US JOBLESS CLAIMS IN LATEST WEEK HIGHEST SINCE APRIL 30, 2011; BIGGEST INCREASE SINCE SEPT 10, 2005 "
Matthew Graham : "RTRS- US JOBLESS CLAIMS ROSE TO 439,000 NOV 10 WEEK (CONSENSUS 375,000) FROM 361,000 PRIOR WEEK (PREVIOUS 355,000) "
Victor Burek : "claims up huge"