3-3-2014 Interest Rate Market Insight

3-3-2014 Weekly

  • Political turmoil have jumped to the global forefront as markets open for an interesting and likely volatile week, as Russia effectively invaded the southern Crimea region of Ukraine, North Korea fired two short range missiles, and dozens were killed in terror attacks in Nigeria and Pakistan over the weekend.  Both US and European leadership are already threatening sanctions against the Russians unless Vladimir Putin withdraws troops from a nation whose protestors forced out its Russia-sympathizing president only a week ago.  As the ruble got crushed, Russia raised its weekly funding rate by 150 bps to 7%, and the Russian stock market is down over 8%.  Futures in this jobs week are responding as might be expected, with global equities headed down roughly 1%, bond yields falling in safe places and rising in risky ones, and prices in the global energy complex and gold up about 2%.  Before the thought of a cold/land war in Europe re-merged after 25 years of dormancy, domestic equities had risen to another all-time high last week, thanks mostly to more well-received Congressional testimony by Fed Chair Yellen, along with some data stabilization.  Yellen essentially reiterated that the taper of asset purchases was probable to continue unless the outlook darkened dramatically, and she and other FOMC board members have managed to defuse the detonator of a 6.5% unemployment rate on the liquidity-busting bomb that is the Fed’s raising of the target rate.  An inflation spike seems the only impetus for raising the target rate anytime soon unless GDP averages above 3% for 2014.  However, the revised GDP report for Q4 2013 was expectedly revised lower to 2.4% QoQ annualized from 3.2%, and both the headline and core inflation metrics in the release rose above 1.3%.  Durable goods orders fell 1% but gained 1.1% excluding transportation, both better than consensus.  While jobless claims rose to 348k new, new home sales unexpected rose 10% in January.  As weather drag begins to fade, economic data needs to improve.  Both FHFA and S&P Case-Shiller home price indices rose 0.8% MoM in their latest readings, but those are for late 2013 sales.  Chicago PMI stayed very strong and bested consensus with a reading near 60.
  • While the nonfarm payrolls report and the ADP private sector jobs data are both expected to show net jobs gains of about 155k, the unemployment rate is expected to hold at 6.6% and average hourly earnings should rise 0.2%.  Personal income and spending are expected to rise 0.2% and 0.1% MoM, respectively, and the important inflation gauge that is the core PCE price index should rise a modest 0.1% MoM.  ISM services and manufacturing readings should maintain near 54 and 52, respectively, when released in the first half of the week.  Construction spending and factory orders are expected to decline MoM, and the international trade deficit is likely to hold at -$39 billion for January.

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