Bond markets had done a somewhat decent job of clawing back from overnight weakness by the time the domestic session got underway. The stronger-than-expected ADP print didn't afford much time to settle in to any ranges, at first pushing prices to the lows of the morning, but subsequently being shrugged off by both stocks and bonds. Any ADP-related movement was dwarfed by the GDP reaction which netted several quick bps of gains in Treasuries, 6 ticks of improvement in MBS and a 5 point sell-off in S&P futures in the blink of an eye. The bounce was short-lived as markets digested GDP's internals and saw a less gloomy outlook than the headline suggests (chalking the negative number up largely to inventories changes and a decrease in Defense spending). Bond markets bounced back into weaker territory before the NYSE opening bell, whereupon stocks moved initially higher before stalling out at technical ceilings in line with yesterday's highs. MBS bounced at 102-28 around 11am and have been holding their ground since then.
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Leaking Back To Weaker Levels After Morning Volatility
Bond markets began the overnight session in moderately weaker territory as Asia traded generally "risk-on" (higher stocks, weaker yen, higher bond yields). Strong data in the UK and sell-biased tradeflows from central banks contributed to an extension of the weakness in the European hours.
The latter saw 10yr yields rise to 2.035 just after 3:30am. From there, some of the weakness ebbed into the domestic session and equities futures supported the notion of "pausing" the overnight "risk-on" moves. MBS came in the door a few ticks weaker than yesterday's close.
ADP Payrolls were better than expected and provided the first dose of volatility in the domestic session, taking Fannie 3.0s briefly below 103 for the first time since August. All told, it was a mere hiccup for broader bond markets, which digested the data fairly well. 10's rose by not even half a bp before turning around and waiting for GDP.
After GDP printed a surprise -0.1, volume spiked and yields zipped a quick 3 bps lower. Everything was "risk-off" for 2 minutes or so, before stocks and bond yields bounced back higher. Stocks went sideways until the opening bell, shot to the highs of the morning 20 minutes later, and have since been selling off mildly with the S&P down 5 points from the highs.
Bond markets are having none of it, however... 10'd disconnected from the stock lever CONVINCINGLY at 9:08am, rose to 2.02, and have traded within a bp of that ever since. MBS consequently moved back into their "fear of duration" stance and Fannie 3.0s are back at their lows of the morning (102-31+ at the moment).
Is the disconnection and the weakness simply a defensive stance heading into this afternoon's FOMC? Probably... Not much going on until then, save for the 1pm 7yr Note Auction, but that's almost not worth mentioning in light of 2:15pm FOMC. Keep in mind, there's no press conference with today's release, so extra volatility is possible as the statement remains open to interpretation without clarification from Bernanke and framing by the member forecasts.
ECON: Q4 Advance GDP Falls 0.1 Percent, Much Weaker Than Expected
- GDP -0.1 pct vs +1.1 Consensus
- Deflator +0.6 vs +1.5 Consensus
- PCE Price Index +1.2 vs +1.7 Consensus
- Exports -5.7, first drop since Q109
- Business Inventory changes account for 1.27 of drop
- Headline GDP, first decline since Q209
Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012
(that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the
Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.
The Bureau emphasized that the fourth-quarter advance estimate released today is based on
source data that are incomplete or subject to further revision by the source agency (see the box on page 4
and the "Comparisons of Revisions to GDP" on page 5). The "second" estimate for the fourth quarter,
based on more complete data, will be released on February 28, 2013.
The decrease in real GDP in the fourth quarter primarily reflected negative contributions from
private inventory investment, federal government spending, and exports that were partly offset by
positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment,
and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.
ECON: ADP Private Payrolls Stronger Than Expected
- Payrolls 192k vs 165k Consensus
- December Revised to 185k From 215k
- Market Reaction: Initially, bond markets extended morning weakness, but have since pulled back to their best levels of the domestic session (which are still slightly weaker than Tuesday's closing levels).
Private sector employment increased by 192,000 jobs
from December to January, according to the January ADP National Employment Report, which is produced by ADP, a leading provider of human capital management services, in
collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally adjusted basis. The December 2012 report, which reported job gains of 215,000, was revised downward by 30,000 to 185,000 jobs.
"U.S. private sector employment got off to a good start in 2013, as 192,000 jobs were added during
the month of January," noted Carlos A. Rodriguez, president and chief executive officer of ADP.
"According to the ADP National Employment Report, private sector employers created an average of
183,000 new jobs per month during the last three months. This is an encouraging sign of steady
improvement in the job market."
Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is slowly, but steadily,
improving. Monthly job gains appear to have accelerated from near 150,000 to closer to
175,000. Construction is finally kicking into gear and more than offsetting the weakness in
manufacturing. The recent gains may be overstating any improvement, particularly in the
context of recent revivals in growth at the start of the past three years, but the gains are
Live Chat Featured Comments
Matthew Graham : ""It is a little bit of a surprise, and I'm trying to figure out why it contracted. I would’ve expected it to be higher, obviously so did the survey. This is one *** in the armor of the recent better-than-expected economic indicators. This will make people start to get wary. But if it turns out that Sandy and the fiscal cliff were the reasons for this, people will shrug it off." - WAYNE KAUFMAN, CHIEF MARKET ANALYST AT JOHN THOMAS FINANCIAL IN NEW YORK (via Reuters Instant Views)"
Matthew Graham : "S&P futures back up to pre-release levels"
Matthew Graham : "Also gotta keep y'day's dynamic in mind with paradoxical reaction to Consumer Confidence. Initial sparkle already looks like it's fading."
Matthew Graham : "RTRS - US Q4 BUSINESS INVENTORY CHANGE CUTS 1.27 PERCENTAGE POINTS FROM GDP CHANGE; BIGGEST SUBTRACTION SINCE Q4 2010 "
Matthew Graham : "Probably won't get too carried away before the Fed, but it's better than sharp stick in the eye."
Matthew Graham : "RTRS - US Q4 GDP EX-MOTOR VEHICLES -0.2 PCT, FIRST DROP SINCE Q1 2011 (Q3 +3.5 PCT) "
William Hansen : "TG. Hopefully the snowball effect goes our way"
Matthew Graham : "RTRS - US Q4 EXPORTS -5.7 PCT, FIRST DROP SINCE Q1 2009 (Q3 +1.9 PCT); IMPORTS -3.2 PCT (Q3 -0.6 PCT) "
Matthew Graham : "RTRS- US Q4 PCE PRICE INDEX +1.2 PCT (CONS +1.7 PCT), Q3 +1.6 PCT; CORE PCE +0.9 PCT (CONS +1.0 PCT), Q3 +1.1 PCT "
Matthew Graham : "RTRS- US ADVANCE Q4 GDP -0.1 PCT (CONSENSUS +1.1 PCT), Q3 +3.1 PCT; FINAL SALES +1.1 PCT (CONS +1.6 PCT), Q3 +2.4 PCT "
B-C : "interesting video in the news stream this A.M......"
Victor Burek : "yesterday we sold off big time after a horrible consumer confidence, maybe today we rally with a better than expected report"
Matthew Graham : "RTRS - US ADP DECEMBER PAYROLL CHANGE REVISED TO 185,000 FROM +215,000 "
Matthew Graham : "RTRS- REUTERS CONSENSUS FORECAST FOR ADP PAYROLL CHANGE FOR JAN WAS FOR INCREASE OF 165,000 JOBS "
Matthew Graham : "RTRS - ADP NATIONAL EMPLOYMENT REPORT SHOWS U.S. EMPLOYMENT INCREASED BY 192,000 PRIVATE SECTOR JOBS IN JANUARY "
John Tassios : "ADP in 2 minutes !! get ready for a wild ride today"
Scott Valins : "the common theme with earnings is a miss in revenue but beat in earnings. Not a good signal of growth"
Victor Burek : "i'm thinking the announcement will be identical to last one"
Christopher Stevens : "I agree JR. I am not sure the FOMC can say anything that will drop rates but plenty that could cause them to increase."
John Rodgers : "The chances of us hitting 1.85 before 2.10 are about as good as me beating Lebron 1v1"
Christopher Stevens : "is it 2.10 before 1.85 though?"
John Tassios : "according to Schilling in his book, he spells out de-leveraging headwinds and deflation forces will take hold / consumers and goverments are deleveraging/ he also called for mild recession in 2013 / his track record for these kinds of predictions is hard to beat the past 30 years / we will see in this case how right his predictions are"
Victor Burek : "break up of eu"
Mike Drews : "what could possibly make the 10 go down to 1 at this point? "
John Tassios : "The FTN guy is Christopher Lowe, and he is usually on the money too"
Victor Burek : "gonna new euro drama for that"
John Tassios : "Gary Schilling / has called 10 year / 30 year correctly for 30 years / and he still stands on his prediction of 10 year going down close to 1.00% and 30 year bond to 2.00%"
Christopher Stevens : "According to the WSJ that the small investor is back in the market. Conventional Wisdom would then say it's time for the institutional investors to get out."