HEADLINE NEWS & MARKET REPORT
Retail Sales increased 0.8% in March from February, and were up 6.5% year-over-year. Retail sales in February were revised to up 1.0%, from 1.1%. The broad-based sales gains, were led by building materials and garden equipment, furniture, gasoline, electronics and autos. Motor vehicle and parts sales rose 0.9%, and excluding autos, retail sales climbed 0.8% in March.
Business Inventories increased 0.6% in February, following a revised 0.8% advance the prior month. Sales climbed 0.7% after a 0.4% gain in January. Inventory swings may diminish in the first half of 2012 after helping the economy grow in the fourth quarter at the fastest pace in more than a year.
The Federal Reserve Bank of New York's general economic index unexpectedly decreased to 6.6 in April, much weaker than expected.
Treasuries Hold Gain on Concern Debt Crisis Is Deepening. The 10-year UST note yield is 1.95%, below the key 2% level for a second day as speculation the European sovereign-debt crisis is intensifying, causing a "flight to quality". FNMA 3.5% are +5+/32 as of 10:22AM EST.
Lenders Fear Impact of New Mortgage Rule U.S. mortgage lenders and real-estate agents are growing concerned a new set of mortgage-lending standards under development by a new consumer regulator will imperil the fledgling housing recovery and limit the availability of home loans.
Consumer Price Rise Puts Fed in Quandary U.S. consumer-price growth slowed a bit in March, as energy inflation decelerated from the breakneck pace earlier this year.
ADP Private Employment Payrolls increased by 209,000 in March after a revised 230,000 gain in February. Employment in the construction industry grew by 13,000 in March, the sixth monthly gain in a row, and financial services jobs increased by 8,000 in February, the eighth consecutive monthly gain.
MBA Weekly Mortgage Applications Survey Market Composite Index decreased 2.7%, Refinance Index decreased 4.6%, and the Purchase Index increased 3.3%. The refinance share decreased to 71.9% and the ARM share of activity decreased to 5.4%.
ISM nonmanufacturing purchasing managers' index came in at 56.0 in March, down from 57.3 in February, and has been in expansion territory for more than two years. "Respondents' comments remain mostly optimistic about business conditions," the ISM report said. "They indicate that increased discretionary spending reflects the increased confidence level of businesses and consumers."
Treasuries Rise as Europe Debt Crisis Lifts Safety Demand. The 10yr UST is +12/32 to yield 2.25% and FNMA 3.5% are up 11/32. Volatility rose yesterday to the highest in a week as Fed minutes dashed speculation policy makers would hint at more asset purchases.
Fed Holds Fire on Stimulus. Markets Sour as Central Bank Dashes Hopes of Imminent Moves to Stir Economy. FOMC Minutes indicate that the Fed wait and see how the economy performs before making any other changes to monetary policy. The potential chance for a third round of quantitative easing "QE3" - bond buying, was reduced yesterday and bond prices declined sharply following the minutes release.
Good Friday + Nonfarm Payrolls Collide! The BLS Non Farm Employment report is due out Friday at 8:30 AM and is expected to show a payrolls increase of 203,000 in March, slightly lower than the 227,000 jobs added in February. This would be the fourth consecutive monthly increase of over 200,000 new jobs. Friday will be a very short trading day as there is an early, early close at NOON for the bond market, two hours earlier than they usual 2:00PM early close.
Fed’s Lacker Expects 2013 Growth of 3%, Warranting Higher Rates.
Home Prices Seen Dropping 10% in U.S. on Foreclosures: Mortgages. Sales of repossessed properties probably will rise 25% in 2012 from 1 million in 2011, resulting in further price declines.
Initial Jobless Claims fell by 5,000 to 359,000 in the week ended March 24, and the prior week's figure was revised to 364,000 from 348,000. Labor made its annual adjustment to seasonal factors this week, causing revisions to claims data back to 2007. As a result, recent weeks' figures were adjusted up. Continuing claims dropped by 41,000 in the week ended March 17 to 3.34 million.
Gross Domestic Product grew at an inflation-adjusted annual rate of 1.7% during all of 2011, in the third and final estimate for the quarter. The 2011 figure, also unrevised, was a significant slowdown from the 3.0% GDP in 2010. The quarterly gain, while the strongest gain since the second quarter of 2008, was below expectations calling for 4Q11 GDP to be revised to a 3.2% growth rate.
Treasuries Advance as Euro Concern Spurs Safety Demand. $29 billion 7yr USTs will be auctioned at 1PM today.
US Housing Starts Dip; Permits Near 3 1/2-Year High: U.S. housing starts fell in February, and according to a government report on Tuesday, permits for future construction jumped to their highest level since October 2008. The Commerce Department said housing starts slide 1.1 percent to a seasonally adjusted annual rate of 698,000 units. January’s starts were revised up to a 706,000-unit pace from a previously reported 699,000 unit rate. Economists polled by Reuters had forecast housing starts little changed at a 700,000-unit rate. Compared to February last year, residential construction was up 34.7 percent, the biggest year-on-year rise since April 2010. New building permits increased 5.1 percent to a 717,000-unit pace last month, widely exceeding economists’ expectations for an improvement to a 690,000-unit pace from January's 682,000-unit rate.
Treasury 10-Year Notes Snap Longest Drop Since 2006: Treasuries rose, pushing 10-year note yields down from four month highs, and ending a nine-day decline that was the longest run of losses since 2006, as yields increased to levels that enticed investors. Yields on the 30-year bond dropped from the highest levels since September before the Federal Reserve buys as much as $2.25 billion of Treasuries maturing from February 2036 to February 2042. China raised fuel prices, sparking concern its domestic growth may slow and boosting demand for U.S. government debt.
MBA Weekly Mortgage Applications Survey: The Market Composite Index decreased 2.4%, The Refinance Index decreased 4.1%, and the Purchase Index increased 4.4%.
The refinance share activity decreased to 75.1% from 77.0%, and ARM share increased to 5.8% from 5.4%. “Applications for home purchase increased again last week, coinciding with another strong job market report. Purchase applications are now almost 12 percent above the level one month ago, even after adjusting for typical seasonal patterns. However, this level of purchase activity, adjusted or unadjusted, was essentially unchanged when compared to the same time last year. Purchase activity remains subdued and within the narrow range we have seen since the expiration of the homebuyer tax credit in 2010,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Refinance application volume fell last week. Although rates were unchanged on average, they trended up through the course of the week, and this likely discouraged many potential refinance applicants. HARP volume continued to grow as a share of total refinance volume, reaching roughly 30 percent of refinance activity in the last two weeks. Typical HARP loans had loan-to-value ratios above 90 percent, indicating that lenders are reaching out to underwater borrowers.”
Import Price Index increased 0.4% in February following two months of no change; Export prices rose 0.4% after a 0.2% advance in January. Higher fuel prices more than offset declining nonfuel prices. Prices excluding fuel fell 0.1%.
Current-Account Deficit in U.S. Widens to $124.1 Billion.
The broadest measure of international trade because it includes income payments and government transfers, grew 15%.
Treasury 10-Year Yields Rise to Highest in Four Months.
The 10yr UST price is down for the sixth day in a row, and today has lost 28/32 to yield 2.22 as of 11AM EST, and FNMA 3.5% are down 15/32. Volatility was at almost the lowest level in more than four years according to Bank of America Merrill Lynch’s MOVE index, having rose yesterday to 73.8bp, up from 69.9bp on Monday, the lowest since July 2007, and down from the August high of 117.8. Recent ultra-low UST yields long have failed to reflect the progress being made in the U.S. recovery, largely because of the Federal Reserve's cautious outlook and its direct involvement in the bond market. The FOMC statement yesterday showed more optimism and seems to have opened the floodgates to higher yields. The yield on 30-year bonds has soared more than 0.16 percentage point since then.
Text of FOMC Statement:
"The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014….. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability."
FOMC Statement: Analysts Call It 'Mildly Bearish' for Bonds
Growth in U.S. Will Strengthen as Jobs Boost Consumer Sentiment: Economy
The world’s largest economy will strengthen through 2012 as employment gains give Americans the means to withstand rising fuel costs, according to economists surveyed by Bloomberg News.
Jobs Recovery Revives U.S. Furniture Sales on Rebounding Market for Houses More Americans are stretching out on new sofas as they settle into recently purchased homes, amid an improving outlook for employment.
Stress Tests Show How Fed Drove U.S. Banks to Bolster Their Balance Sheets
The resilience of the largest U.S. financial firms when tested against a recession more severe than the last one shows regulators have succeeded in pushing banks to build fortress-like balance sheets.