MBS MID-DAY: Weakness After ECB, Claims. Off Lows Now
The overnight price action wasn't particularly interesting and certainly failed to adhere to any of the recent patterns of flatness in Asian markets and risk-on selling in European hours. Instead, today's selling kicked in after domestic markets opened, and MORE OF IT! The culprits were the ECB press conference following the policy announcement and stronger-than-expected Jobless Claims data. The press conference wasn't particularly shocking in any way, but ECB Pres Draghi clearly avoided giving any indication of impending easing other than to admit that a rate cut "was discussed." That's a phrase he's used before, and combined with his generally confident tone, markets were left with little reason to fear mishandling of potential future shocks, let alone new easing measures. That said, Draghi certainly didn't shut the door on future easing in a very Bernanke-like sort of way ("if conditions warrant," etc...).
While markets were gradually reacting to Draghi, they'd already instantly reacted to another stronger-than-expected Jobless Claims print. All told, 10yr yields rose intially from 8:30-8:40 on claims, but held fairly steady after 1.975 highs, ostensibly "waiting" for the Fed's scheduled buying and to a lesser extend for stocks to open. Meanwhile European metrics continued to suggest higher 10yr yields. During the Fed buying operation, yields quickly caught back up with European markets making for a 6bp trough to peak move. MBS put in their lows at the same time (102-25 in Fannie 3.0s) and have since leveled off the the apparent safety of a sideways range between those lows and overhead resistance at the post-Claims lows.
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
MBS Hit New Lows. Reprice Risk Already?
In a word, yes. The pop higher in Treasury yields and the somewhat rapid shedding of 4 ticks from the first rate sheets of the day make negative reprice risk a possibility already. Of course there's a heavy caveat here based on the timing of a lender's initial rate sheet (some aren't even out yet), but the earlier in the session rates came out, the higher the risk.
Bond Markets Significantly Weaker Following Claims/Draghi
After a flat, quiet overnight session, Treasuries hit 8am in New York perfectly in line with yesterday's 5pm levels. Volume and volatility had been light overnight, leaving this morning's ECB Press Conference and domestic economic data to move the needle.
The first vote for bond market weakness came from the lower-than-expected Jobless Claims, which were out at 8:30am, before any snippets of ECB Pres Draghi's press conference had begun. For their part, Draghi snippets have been net-negative for core bond markets with Euros and German Bund yields surging into the 9am hour.
The combination of weaker Bunds on a lack of bullish motivation in Draghi's press conference, and the stronger-than-expected Jobless Claims figures brought 10yr yields up to 1.976 where we've had 2 "ceiling bounces" so far. The analogous support for MBS was seen at 102-30 in Fannie 3.0s, which are now back up to 103-00 (down 6 ticks on the day). 10's are down to 1.9652 (up 2.6 bps on the day). S&P futures are roughly 2 points higher than 4pm levels just ahead of the cash open in stock markets.
Supportive levels are--well... "supportive" for now, but we can't rule out that the bounce is consolidative in preparation for the next move. Draghi's speech is ongoing at the moment and although unlikely, it could still contain a market moving surprise. There is no more significant economic data on tap for today leaving tradeflows, stock lever, and pre-NFP positioning as the main considerations.
ECON: Productivity Slightly Lower, Labor Costs Slightly Higher Than Expected
- Q4 productivity -1.9 vs -1.6 forecast
- Labor Costs +4.6 vs +4.3 pct forecast
- Market reaction: least of the 3 reports. All about Claims and Draghi
Nonfarm business sector labor productivity decreased at a 1.9 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 0.5 percent in output and 2.5 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 0.5 percent as output and hours worked increased
2.5 percent and 1.9 percent, respectively. Annual average
productivity increased 0.7 percent from 2011 to 2012.
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. The measures released
today were based on more recent source data than were available for the
Unit labor costs in nonfarm businesses increased 4.6 percent in the fourth
quarter of 2012, the combined effect of the 1.9 percent decrease in
productivity and a 2.6 percent increase in hourly compensation. Unit labor
costs rose 2.1 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: Trade Deficit Slightly Wider Than Expected
- Trade Gap $44.45 bln vs $42.6 bln consensus
- Exports down 1.2 vs +2.2 in Dec
- Imports +1.8 vs -2.6 in Dec
- Market Reaction: not much compared to Claims, Draghi
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of
Commerce, announced today that total January exports of $184.5 billion and imports of $228.9
billion resulted in a goods and services deficit of $44.4 billion, up from $38.1 billion in
December, revised. January exports were $2.2 billion less than December exports of $186.6
billion. January imports were $4.1 billion more than December imports of $224.8 billion.
In January, the goods deficit increased $5.7 billion from December to $61.8 billion,
and the services surplus decreased $0.6 billion from December to $17.3 billion.
Exports of goods decreased $2.0 billion to $130.8 billion, and imports of goods increased
$3.6 billion to $192.5 billion. Exports of services decreased $0.1 billion to $53.7 billion,
and imports of services increased $0.5 billion to $36.4 billion.
The goods and services deficit decreased $7.8 billion from January 2012 to January 2013.
Exports were up $5.8 billion, or 3.3 percent, and imports were down $2.0 billion, or 0.9 percent.
ECON: Jobless Claims Lower Than Expected
- Claims 340k vs 355k consensus, 347k previously
- Market Reaction: One of the leading sources of weakness so far
In the week ending March 2, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 7,000 from the previous week's revised figure of 347,000. The 4-week moving average was 348,750, a decrease of 7,000 from the previous week's revised average of 355,750.
The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending February 23, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending February 23 was 3,094,000, an increase of 3,000 from the preceding week's revised level of 3,091,000. The 4-week moving average was 3,121,750, a decrease of 37,500 from the preceding week's revised average of 3,159,250.
Live Chat Featured Comments
Matthew Graham : "RTRS- ECB'S DRAGHI - MARKETS HAVE REVERTED BACK TO WHERE THEY WERE BEFORE ITALIAN ELECTION "
Matthew Graham : "RTRS- DRAGHI - INFLATION RISKS ARE BROADLY BALANCED"
Matthew Graham : "RTRS - DRAGHI - GROWTH RISKS ARE ON THE DOWNSIDE"
Matthew Graham : "RTRS - ECB'S DRAGHI - INFLATION FIGURES MAY BE SOMEWHAT VOLATILE "
Matthew Graham : "RTRS- DRAGHI SAYS ECB STAFF PROJECT GDP GROWTH IN 2014 IN A 0.0 TO 2.0 PCT RANGE (0.2 TO 2.2 PCT RANGE IN DEC) "
Victor Burek : "Draghi says data suggests economy will stabilize in 1h 2013..what a joke, does anyone believe that"
Jude Bridwell : "no help coming for us"
Matthew Graham : "RTRS - DRAGHI - ECB MON POL STANCE WILL REMAIN ACCOMMODATIVE WITH FULL ALLOTMENT OF LIQUIDITY "
Matthew Graham : "RTRS- DRAGHI - LATER IN 2013, ECONOMY SHOULD GRADUALLY RECOVER "
Matthew Graham : "RTRS - DRAGHI - LATEST SURVEY DATA CONFIRM STABILISATION AT LOW LEVELS "
Matthew Graham : "RTRS- U.S. Q4 NON-FARM UNIT LABOR COSTS REVISED TO +4.6 PCT (CONSENSUS +4.3 PCT) FROM +4.5 PCT "
Matthew Graham : "RTRS - U.S. Q4 NON-FARM PRODUCTIVITY REVISED TO -1.9 PCT (CONS. -1.6 PCT) FROM -2.0 PCT "
Matthew Graham : "RTRS - US JAN TRADE DEFICIT $44.45 BLN (CONSENSUS $42.6 BLN) VS DEC DEFICIT $38.14 BLN (PREV $38.54 BLN) "
Matthew Graham : "Trip to Italy was fun while it lasted"
Oliver S. Orlicki : "right back in our range"
Matthew Graham : "RTRS- US JOBLESS CLAIMS 4-WK AVG FALLS TO 348,750 MARCH 2 WEEK, LOWEST SINCE MARCH 2008, FROM 355,750 PRIOR WEEK (PREVIOUS 355,000) "
Oliver S. Orlicki : "here comes the red"
Matthew Graham : "RTRS - US JOBLESS CLAIMS FALL TO 340,000 MARCH 2 WEEK (CONSENSUS 355,000) FROM 347,000 PRIOR WEEK (PREVIOUS 344,000) "