2-24-2014 Weekly Interest Rate Market Insight

2-24-2014 Weekly

  • Three weeks of regrouping has almost entirely absorbed the recent mini-correction, and as we take stock of the overall impact, equities are a wash, commodity prices are higher, and bond yields are a touch lower across swap and Treasury curves.  Though the Winter Olympics close in Sochi, we see a new beginning in nearby Ukraine as the pro-Russian government has crumbled under the revolt, with the former President now fleeing arrest and the opposition leader being released from imprisonment and awaiting her potential run for President in May.  Since Ukraine is a gateway country for Russian oil and gas resources to eastern Europe and they are nearly insolvent at the moment, the country’s stability is keenly important and will be supported by the international community.  The domestic momentum has improved just as the data has soured, and most pundits give credit to Fed Chair Yellen’s well-received launch into her new role as the primary positive.  This sentiment was evinced through her testimony, in the FOMC minutes release, and also in the newly published full-meeting transcripts from 2008, which encapsulate the credit crisis and the Fed’s response in great detail.  While the qualitative outlook has brightened, data have missed on so many fronts that the expectation for Q1 GDP has already been revised down to 2.5% from 3.2%, and most are happy to blame the weather, particularly with Polar Vortex III on the way.  Existing home sales slipped to 4.62MM annualized units for January, 10% below their recent peak and off 5% YoY, while housing starts also missed consensus at 880k annualized vs. 950k and single family and condo units slipped over 15% MoM.  Along with the frigid buying environment, mortgage rates remain elevated, forcing affordability down.  The homebuilder index fell 10 points from 56 to 46, a record drop.  On the manufacturing front, the Empire State survey was half expectations but still positive, while the Philly Fed survey slipped into negative territory at -6.6.  Leading indicators did advance 0.3% MoM, and CPI and PPI inflation reports, the latter which now includes components for the service and construction sectors, both rose 0.1% MoM ex food and energy, well controlled by the Fed’s general metrics.
  • The solitary strong report of last week, the Markit PMI manufacturing index flash at 56.7, with a good story for new orders and backlogs, can give us hope for the week ahead.  To close out the month, we will see durable goods orders (-1.6% headline, -0.4% core ex transports expected) and house price data (FHFA and S&P Case-Shiller Indices) along with what should be soft new home sales.  The GDP report on Friday morning should show prices contained at 1.3% QoQ annualized even as growth slips.  Treasury will issue its second round of floating rate notes, after the first 2-year maturity ended up yielding the 13-week T-Bill + 0.045%.  Fed Chair Yellen will meet with Senate Banking on Thursday.

Give Chris Hunt a call at (440) 892-8000 to discuss or be added to our weekly rate email distribution.

Comments are closed.