This morning's Day Ahead
, pondering potential NFP outcomes, closed with the following thought: "The unpleasant fact about either scenario is
Thursday's price action suggests that we consider the possibility of a negative shift in longer term trends, and that's something that will have to be disproved before becoming less of a concern." While there's no telling where we'll go from here, at the very least, we can be sure that the "possible negative shift" is NOT disproved
following this morning's NFP. The report itself was only mildly better than expected, mostly due to last month's revision, as well as a longer work-week and higher pay suggesting even more "employment" is out there than the 155k payrolls number suggests (this is consistent with the recent contention that hiring has been subdued because of Fiscal Cliff uncertainty... i.e. fewer people doing more work).
But even before the report was out, Asia and Europe had already taken bond markets for a nasty ride overnight, bringing 10yr yields all the way up to 1.972. MBS opened up at a stomach-churning 103-19, and 10yr yields basically at 1.96. There was volatility following NFP, but it was contained by the morning's weakest levels on one end and yesterday's weakest levels on the other. That's precisely the sort of "ratcheting" movement that we DIDN'T want to see this morning. Far from doing anything at all to disprove the aforementioned "negative shift," such movement actually does more to confirm it. The saving grace is that we're in the middle of the day's trading range so far. This at least leaves hope that we can close above the morning lows, though we'd emphasize that lock/float decisions are best made on an intraday basis. Not only is this generally the safest way to go, but we're at the point now where we have to assume further losses day-over-day until a sufficient bounce back interrupts that trend.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 11:06 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
ECON: Factory Orders Weaker Than Expected
- Factory Orders +0.0 vs +0.4 forecast, +0.8 previously
- Market reaction: This is the less important of the two 10am data-sets, and being a November report, less timely than ISM Non Manufacturing. Strength in the ISM report is generally outweighing the weakness here in Factory orders, though the miss perhaps help to contain what otherwise might be a more pronounced move lower in price for bond markets.
New orders for manufactured goods in November, up
four of the last five months, increased $0.2 billion to
$477.6 billion, the U.S. Census Bureau reported today.
This followed a 0.8 percent October increase. Excluding
transportation, new orders increased 0.2 percent.
Shipments, up four of the last five months, increased
$2.0 billion or 0.4 percent to $483.7 billion. This
followed a 0.3 percent October increase.
Unfilled orders, up five of the last six months,
increased $1.1 billion or 0.1 percent to $984.5 billion.
This followed a 0.3 percent October increase. The
unfilled orders-to-shipments ratio was 6.14, down from
6.23 in October.
Inventories, down two consecutive months, decreased
slightly to $615.2 billion. This followed a slight October
decrease. The inventories-to-shipments ratio was 1.27,
down from 1.28 in October.
ECON: ISM Non-Manufacturing Stronger Than Expected
- PMI 56.1 vs 54.2 forecast
- Employment Index 56.3 vs 50.3 in November
- Business Activity 60.3 vs 60.0 forecast, down from 61.2 in November
The NMI™ registered 56.1 percent in December, 1.4 percentage points higher than the 54.7 percent registered in November. This indicates continued growth at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 60.3 percent, which is 0.9 percentage point lower than the 61.2 percent reported in November, reflecting growth for the 41st consecutive month. The New Orders Index increased by 1.2 percentage points to 59.3 percent. The Employment Index increased by 6 percentage points to 56.3 percent, indicating growth in employment for the fifth consecutive month at a significantly faster rate. The Prices Index decreased 0.4 percentage point to 56.6 percent, indicating prices increased at a slightly slower rate in December when compared to November. According to the NMI™, 13 non-manufacturing industries reported growth in December. Respondents' comments remain mixed and are mostly positive about business conditions and the economy.
Bond Markets Weaker Overnight, NFP Brings More Indecision
First of all, there's still hope. 10's and MBS are still grinding sideways and possibly slightly higher in price following NFP, and so far, supports have held at the lows. That said, things are still fairly ugly and ominous overall. Just as we haven't broken support, neither have we taken out any meaningful resistance. In fact, as of now, we're looking at an incredibly nasty inflection point bounce in 10yr yields between yesterday's high yields and this morning's lows--similar story for MBS which bottomed out around 103-31 yesterday and have gone no higher than 103-30 so far this morning. 10's inflection point is in the mid 1.91's.
Japan had been on New Years holiday break until last night. We'd hoped they'd come back in and be more supportive of recent weakness, but they simply got on board with the raining on bond markets' parade. Europe and London hurt even more, bringing 10yr yields all the way up to a staggering 1.97+.
We were already bouncing back some before NFP hit at 8:30am. There has been ample volatility following the as-expected release. It would have probably been more supportive if not for some strong-ish internals. Even so, as this update is being written, 10's and MBS are edging ever-closer to retesting the aforementioned inflection points after both gave us quite a scare moving to 1.962 and 103-18 respectively.
10's are now down to 1.929 and Fannie 3.0s up to their session highs at 103-30+, but it's hard to be overly optimistic. The overnight and morning price action thus far, is doing more to confirm a shift toward negative trends than a heroic romp back to stronger levels, despite the quantum of solace afforded by holding ground at AM lows and inching toward the inflection points. It's a long road ahead--uphill both way (in the snow maybe!)--if we're to meaningfully break back in to yesterday's ranges. Waiting and seeing... Not utterly defeated, but not overly hopeful.
ECON: Non-Farm Payrolls As Expected, Bond Markets Fighting
- Payrolls 155k vs +150k Consensus
- Previous month revised up to 161k from 146k
- Unemployment Rate 7.8 pct vs 7.7 consensus
- Labor force participation rate unchanged
- work-week up .1 hrs, wages up .3 pct vs .2 consensus
- Market reaction has been volatility within a range thus far with both 10yr yields and MBS rallying initially, pulling back to earlier morning weak spots and now hopefully, maybe, kinda, sorta holding that ground and moving back off the lows.
Nonfarm payroll employment rose by 155,000 in December, and the unemployment
rate was unchanged at 7.8 percent, the U.S. Bureau of Labor Statistics reported
today. Employment increased in health care, food services and drinking places,
construction, and manufacturing.
Live Chat Featured Comments
Matthew Graham : "RTRS- U.S. NOV FACTORY ORDERS UNCHANGED (CONSENSUS +0.4 PCT) VS OCT +0.8 PCT (PREV +0.8 PCT) "
Matthew Graham : "not bond-market friendly, but possibly offset to a small extent by the relatively less consequential Factory Orders miss"
Matthew Graham : "RTRS- ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI AT 56.1 IN DECEMBER (CONSENSUS 54.2) VS 54.7 IN NOV "
Jeff Anderson : "We'll see what corporations think the consumer will do this year as far as if they ramp up spending and hiring. The majority of consumers will have 2% less to spend, healthcare costs going up and if oil spikes again... Feels like another bit of a false starte like we've had the last few years. Who's the chicken and who's the egg."
Gus Floropoulos : "good thing is yields rose quickly, therefore it wasnt a slow dragged out process, hopefully benchmarks can hold these levels and a range establishes with this as the high rather than the new low"
Ted Rood : "Need a little Euro panic, or budget/debt cutting news to put a little fear back in the market."
Steven Stone : "I think there is a better chance of lower rates than higher at this point"
MMNJ : "It's easy to grin, when your ship comes in, and you've got the stock market beat....but the man worthwhile, s the man who can smile, when his shorts are too tight in the seat. OK Poookie....do the honors"
Matthew Graham : "question is how much it'd be improving without life support. And from there, how much of the rally is the mere horse trading of life-support potentialities?"
Victor Burek : "what impact is higher taxes for 80% of americans gonna have on the economy?"
John Rodgers : "I hate to break it to you guys but the economy is improving"
Matthew Graham : "RTRS- U.S. DEC AVERAGE WORKWK ALL PRIVATE WORKERS 34.5 HRS (CONS 34.4 HRS) VS NOV 34.4 HRS (PREV 34.4 HRS), FACTORY 40.7 VS 40.6, OVERTIME 3.3 VS 3.3 "
Oliver S. Orlicki : "and there goes our gains"
Matthew Graham : "RTRS - U.S. DEC AVERAGE HOURLY EARNINGS ALL PRIVATE WORKERS +0.3 (CONS +0.2 PCT) VS NOV +0.3 PCT (PREV +0.2 PCT), TO $23.73 VS NOV $23.66; DEC YEAR-ON-YEAR EARNINGS +2.1 PCT "
Matthew Graham : "RTRS- U.S. LABOR FORCE PARTICIPATION RATE 63.6 PCT IN DEC VS 63.6 PCT IN NOV "
Matthew Graham : "RTRS - U.S. DEC JOBLESS RATE 7.8 PCT (CONSENSUS 7.7 PCT) VS NOV 7.8 PCT (PREV 7.7 PCT) "
Matthew Graham : "RTRS- US DEC PRIVATE SECTOR JOBS +168,000 (CONS +148,000), NOV +171,000 (PREV +147,000) "
Christopher Stevens : "that will keep 10YR below 2.00"
Matthew Graham : "RTRS- U.S. DEC NONFARM PAYROLLS +155,000 (CONSENSUS +150,000) VS NOV +161,000 (PREV +146,000), OCT +137,000 (PREV +138,000) "