Two key reports yesterday; the May ISM manufacturing index and April consumer spending. Markets tossed the spending in the trash even though consumers that account for 70% of economic growth was flat---no increase. The ISM manufacturing index was the best in the last three months but was anything but exciting, that report was what investors and traders focused on. The index increased to 52.8 frm 51.5, better than 51.8 expected but not the best this year, January the index was at 53.5. These days markets tend to give more attention to anything better no matter how minor, while ignoring what we see as more critical like personal spending that has faltered all year.
At 9:30 the DJIA opened -43, NASDAQ -19, S&P -6. The increase in interest rates driving investors to do some selling, within 10 minutes of the open the DJIA traded down 95 points. At 9:30 the 10 yr note at 2.24% +6 bps and 30 yr MBS price -27 bps frm yesterday’s close and 54 bps lower than at 9:30 yesterday.
April factory orders at 10:00; expectations were for orders to be flat frm March, as reported orders declined 0.4%, it was the eighth time in the last nine months factory orders have declined. March orders were up 2.2%; have to go back to last July for another month where orders increased.
May auto and truck sales coming stronger than forecasts.
Last Friday’s price action looked like maybe rates would improve somewhat; it was as we noted yesterday a false move, yesterday no follow-through. We didn’t bite Friday though and suggested keeping locked. The ISM May manufacturing index took whatever bullish bias away in a flash. This morning the 10 yr, driver for MBS prices, at 2.24% has moved the 10 back above its 200 day average again opening a re-test of the recent high rate at 2.33% back on May 12th. All of our work back to bearish in the near term. Inflation news frm Europe the trigger this morning. A lot more data yet to uncover through the rest of the week that should continue the increasing volatility.
BEST TO KEEP LOCKED TODAY. WE WILL LET YOU KNOW IF PRICES TURN AROUND BUT LIKELY WON’T BE ENOUGH TO CONSIDER RISKING FLOATING.
PRICES @ 10:00 AM
10 yr note: -17/32 (53 bp) 2.24% +6 bps
5 yr note: -7/32 (22 bp) 1.60% +5 bps
2 Yr note: -1/32 (3 bp) 0.66% +1 bp
30 yr bond: -33/32 (103 bp) 2.99% +6 bp
Libor Rates: 1 mo 0.183%; 3 mo 0.282%; 6 mo 0.423%; 1 yr 0.747%
30 yr FNMA 3.5 June: @9:30 103.86 -30 bp (-57 bp frm 9:30 yesterday)
15 yr FNMA 3.0 June: @9:30 104.09 -21 bp (-27 bp frm 9:30 yesterday)
30 yr GNMA 3.5 June: @9:30 104.23 -30 bp (-51 bp frm 9:30 yesterday)
Dollar/Yen: 123.97 -0.80 yen
Dollar/Euro: $1.1141 +$0.0214
Gold: $1192.30 +$3.60
Crude Oil: $60.74 +$0.54
DJIA: 17,984.95 -55.42
NASDAQ: 5063.14 -19.78
S&P 500: 2104.75 -6.98