2-10-2014 Weekly Interest Rate Market Insight

2-10-2014 Weekly

  • As earnings season nears a close, equities in 2014 are proving to be 40% more volatile on a daily basis than they were at the close of 2013.  The domestic indices shook the weekly losing streak despite another headline-soft jobs report for January, and while yields jumped in a 20-bp range towards the long end of the curve during the week, they settled only fractionally higher as the yield curve steepened.  After spiking to its highest level in more than a year, the VIX slumped 30% to 15.29% to close out the week, leaving investors guessing as to whether this recent downdraft will become a true correction or is bought decisively as was the case last year.  The other commonly followed fear gauges indicate that we haven’t seen the worst yet, meaning rates likely have a lower plateau to visit in the coming month.  The nonfarm payrolls report checked in at 113,000 net new jobs, well below the 180k expectation level but up from a revised 75k December metric.  On the positive front, the household survey was strong, hourly earnings rose 0.2% MoM, and the unemployment rate ticked down to 6.6% even as the workforce participation rate rose for the first time in 7 years.  The 63% labor force participation is comparable to late 1970’s levels, but this slow moving metric has been between 58% and 67% during the last 65 years, and if the decline that started with the rise of the Internet has ended, the economy may have found a stronger footing.  ADP private payrolls beat estimates at 175k new jobs, so we now have two months in a row where this report and the government report have diverged.  Ending the week positive was impressive considering the bloodbath on Monday after the ISM Manufacturing index slumped from 56.5 to 51.3, resoundingly missing the estimate of 56, as new orders slipped 13 points MoM.  The service index released Thursday bested consensus at 54 vs. the prior at 53, and covers a broader swath of economy than the manufacturing index.  Consumer credit jumped in December as spending went on credit cards to the tune of $5 billion, with another $13.8 billion of non-revolving credit comprised mostly of auto and student loans.  Jobless claims fell 20k WoW to below the 4-wk average, and factory orders fell less than expected.
  • The debt ceiling debate seems to be moving along as the vast majority of constituents nationally inform their Congress people that the game of chicken is unacceptable, but we will still could hit the threshold by the last day of February if nothing is ratified prior.  Newly minted Fed Chair Yellen will give her first Congressional testimony on Tuesday, and several House members are expected to give her some tough questions.  The largest data point for the week will be retail sales, where soft auto sales are expected to pull the headline reading negative, but the core ex autos and gas should rise 0.2% MoM.  Both the wholesale trade and business inventory reports should show a roughly 0.5% rise MoM.

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