Quiet this morning in both stocks and bonds. Weekly jobless claims were better than thought, down 7K to 262K, forecasts were for an increase of 5K. The 4 week average, a better way to look at claims, fell to 273.25K frm 281.25K. Jobs are improving. Also at 8:30 Feb Philadelphia Fed business index; expected at -2.5 was -2.8; better than January’s -3.5 but still in contraction. The index has been negative for six months. Better claims, softer Philly Fed countered each other with no noticeable markets reactions to the two reports.
Crude oil is continuing to increase, up $0.77 at 9:00 to $31.43. Talks between OPEC, Iran, Russia and Iraq continue although no freeze in output has been achieved yet. Iraq saying it would curb production of oil to prop up sagging prices, saying negotiations are still ongoing between members of the Organization of the Petroleum Exporting Countries. Even if there is no agreement crude oil has likely seen its lowest prices and won’t return to the $20.00 levels. One oil trader this morning pointed out that traders are increasingly reluctant to sell oil and are preparing not to lose out on the move to $40.00 that is becoming the talk frm the trading pits.
China’s consumer-price index rose 1.8% in January from a year earlier, the government’s statistics bureau reported. Food costs increasing is the reason for the increase. China is still troubled with over capacity, there is no belief that China’s inflation will continue to increase.
Negative interest rates in Japan may be backfiring on the government. Recent indications are Japanese consumers are becoming more sanguine seeing negative rates as increasing fears of a worsening economy. Consumers are cutting back on spending, just the opposite of what Japan’s government expected.
Are global consumers losing faith with central banks? Since 2008 central banks have been sources of salvation in the aftermath of the financial collapse. Recently though central banks have not had much success with stimuli, negative rates or most other attempts to turn the tide of global decline and plans to increase the level of inflation globally. In Europe’s economies deflation is a real possibility no matter what Mario Draghi says. Central banks have not been able to stem the tide of global economic re-balancing occurring the last five years. Their plans are to force consumer spending by removing incentives to save; keeping interest rates close to zero, so far have been unable to gain traction.
At 9:30 the US stock market opened relatively unchanged frm the previous three days of big gains (the DJIA up 793 points). The DJIA opened +28 after trading up 100 in earlier pre-open trade; NASDAQ +1, S&P -1. The 10 yr note unchanged at 1.81%, 3.0 30 yr FNMA coupon -3 bps frm yesterday’s close and unchanged frm 9:30 yesterday.
Jan leading economic indicators at 10:00 -0.2% as expected. Dec originally reported -0.2% was revised to -0.3%. It has been five years since LEI has declined on two consecutive months.
We don’t believe the retracement in stocks and bonds is over yet, we do continue to expect lower stock prices and lower interest rates but as we have been saying, the path will be bumpy and volatile. Technically all of our momentum measurements are losing ground presently. Mortgage rates still very attractive, buyers should take these levels. Betting on the future in this very unsettled environment is very risky. Attempting to get the lows usually doesn’t work well.