Markets were apparently prepared for more economically bullish sentiments from ECB's Draghi this morning, or at least that's the superficial takeaway from the morning's mostly "risk-off" market movements (risk-off connotes stock market weakness and bond market strength). In fact, Draghi wasn't economically bearish, but there were a few dovish anecdotes from the press conference that may have weighed on the Euro (which has been on a major bull-run). We can clearly conclude that the Euro fell hard during and after Draghi, even if the specific reasons for that are less clear. This was the central component to the broader "risk-off" move this morning, which has since carried Treasuries to their best levels since the brief knee-jerk 1.92's that followed NFP last week. Beyond knee-jerks, this is the most time we've spent under 1.95 since January 25th. The rally paused to catch it's breath around 10:52am, but has since levels off with Treasuries in the 1.94's and MBS at 103-17 (note the earlier timestamp on the table below). MBS have generally been struggling to keep pace with the risk-off move this morning, but remain at the week's best levels.
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 11:08 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
After Opening Weaker, Bond Markets Turn Green
The overnight session saw a modest amount of the 'same old' back and forth movement between risk-on and risk-off that has driven markets in their tight ranges so far this week. This time around, it was Spanish and French debt auctions helping reign in peripheral spreads (though we'd note that France is not as "peripheral" as Spain, but it helped the move). Slightly stronger than expected Industrial production in Germany didn't get in the way of the moderate weakness in core debt markets.
To a lesser, but unknown extent, some of the overnight weakness in bond markets (and strength in stock markets) could be due to front-running a positive outcome of the ECB Announcement and Draghi Press Conference. These were relative duds, however, and as markets generally held off on any major reaction to domestic economic data in favor of waiting for Draghi to say something informative.
If anything, Draghi's tilt was bearish, and gave markets reason to expect lighter LTRO repayments going forward. Bond markets have progressively improved since the press conference and the weaker equities open has given us the biggest boost of the morning.
S&P's are down roughly 7 points from their overnight highs, but remain inside their 2 day range. Treasuries, on the other hand, are currently testing a break below their two day range, moving to levels not seen since the post NFP swings on 2/1.
10's are currently down a bp and a half at 1.9496 and MBS are 3 ticks in the green at 103-18. Lenders who priced at 9:30am may soon have to consider positive reprices if current gains hold or are improved upon.
ECON: Productivity Lower, Labor Costs Higher
- Productivity -2.0 vs -1.3 consensus
- Labor Costs +4.5 vs +3.0 consensus
Nonfarm business sector labor productivity decreased at a 2.0 percent annual
rate during the fourth quarter of 2012, the U.S. Bureau of Labor Statistics
reported today. The decrease in productivity reflects increases of 0.1 percent
in output and 2.2 percent in hours worked. (All quarterly percent changes in
this release are seasonally adjusted annual rates.) From the fourth quarter of
2011 to the fourth quarter of 2012, productivity increased 0.6 percent as
output and hours worked rose 2.4 percent and 1.8 percent, respectively.
Labor productivity, or output per hour, is calculated by dividing an index of
real output by an index of hours worked of all persons, including employees,
proprietors, and unpaid family workers.
Unit labor costs in nonfarm businesses increased 4.5 percent in the fourth
quarter of 2012, the combined effect of the 2.0 percent decrease in
productivity and a 2.4 percent increase in hourly compensation. Unit labor
costs rose 1.9 percent over the last four quarters.
BLS defines unit labor costs as the ratio of hourly compensation to labor
productivity; increases in hourly compensation tend to increase unit labor
costs and increases in output per hour tend to reduce them.
ECON: Initial Jobless Claims Slightly Higher Than Expected
- Claims 366k vs 360k Consensus
- 4-week average 350.5k, lowest since March, 08
In the week ending February 2, the advance figure for seasonally adjusted initial claims was 366,000, a decrease of 5,000 from the previous week's revised figure of 371,000. The 4-week moving average was 350,500, a decrease of 2,250 from the previous week's revised average of 352,750.
The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending January 26, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending January 26 was 3,224,000, an increase of 8,000 from the preceding week's revised level of 3,216,000. The 4-week moving average was 3,211,000, an increase of 13,750 from the preceding week's revised average of 3,197,250.
Live Chat Featured Comments
Mike Drews : "last time we hit 1.92 we bounced hard"
Victor Burek : "thats why i said shifting..and not shifted"
Victor Burek : "sure feels like the tide is shifting away from risk again"
Anthony Hicks : "us stock market selling off "
Victor Burek : "europe selling off quickly"
Matthew Graham : "1.926 is post-NFP low, in case we get close."
Christopher Stevens : "I was excited to see 10YR at 1.93 for a second"
Christopher Stevens : "FHA could be next Countrywide...that is some aggressive talk from the Finance Committee Chair"
Matthew Graham : "RTRS - ECB'S DRAGHI - WILL MAINTAIN OUR ACCOMMODATIVE MON POL STANCE, MONITOR SITUATION "
Matthew Graham : "RTRS - ECB'S DRAGHI - ASKED ABOUT LTRO EARLY REPAYMENTS, SAYS HAVE HAD SIGNIFICANT IMPROVEMENT ON FINANCIAL SIDE OF ECONOMY "
Victor Burek : "at the current pace of new jobs, it will take a decade to get to 6.5...assuming the participation rate doesnt increase"
Matthew Graham : "RTRS- EVANS: SEE UNEMPLOYMENT IN 7-PCT VICINITY IN LATE 2014, 6.5 PCT IN MID-2015 "
Matthew Graham : "RTRS- EVANS: MAY BE POSSIBLE TO TURN OFF QE3 BEFORE UNEMPLOYMENT FALLS TO 7 PCT "
John Tassios : "Evans is the most doveish fed memeber / he wants to expand QE "
Matthew Graham : "RTRS- FED'S EVANS: I THINK WE HAVE 'PRETTY APPROPRIATE' POLICIES IN PLACE -CNBC INTERVIEW "
Matthew Graham : "RTRS - ECB'S DRAGHI - BANKS EARLY REPAYMENT OF LTRO'S ARE IN THEIR OWN DISCRETION "
Jeff Anderson : "What is Fed Gov Evans considered? Hawk? "
Matthew Graham : "RTRS - DRAGHI-EARLY 3-YR LTRO REPAYMENT REFLECTS IMPROVEMENT IN FINANCIAL MARKET CONFIDENCE "
Matthew Graham : "RTRS- U.S. 2012 NON-FARM PRODUCTIVITY +1.0 PCT VS 2011 +0.7 PCT, UNIT LABOR COSTS +0.7 PCT VS 2011 +2.0 PCT "
Matthew Graham : "RTRS - U.S. Q4 NON-FARM UNIT LABOR COSTS +4.5 PCT (CONSENSUS +3.0 PCT) VS Q3 -2.3 PCT (PREV -1.9 PCT) "
Matthew Graham : "RTRS - U.S. Q4 NON-FARM PRODUCTIVITY -2.0 PCT (CONSENSUS -1.3 PCT) VS Q3 +3.2 PCT (PREV +2.9 PCT) "
Matthew Graham : "RTRS - US CONTINUED CLAIMS ROSE TO 3.224 MLN (CONS. 3.195 MLN) JAN 26 WEEK FROM 3.216 MLN PRIOR WEEK (PREV 3.197 MLN) "
Matthew Graham : "RTRS - US JOBLESS CLAIMS FELL TO 366,000 FEB 2 WEEK (CONSENSUS 360,000) FROM 371,000 PRIOR WEEK (PREVIOUS 368,000) "