3-31-2014 Weekly Interest Rate Market Insight

3-31-2014 Weekly

  • Traders took stock last week and the markets churned, leaving interest rates somewhat relaxed after the prior week’s gyrations, while equity markets sold off modestly.  Crimea was annexed by Russia, and the US and Europe have started some sanctions along with initial diplomatic discourse with the Russians.  The data remained mixed overall, but the final reading for Q4 2013 GDP was revised up to 2.6%, still below the original 3%+ figure, but in line for an economy with begrudging growth.  The catalysts for global markets this week will come from both Europe and the US, with the former’s central bank meeting Thursday to address the persistent disinflationary environment of late and whether additional rate policy easing is warranted, while the BLS releases March employment data for the US on Friday.  If the ECB decides to cut and the US jobs picture turns rosy as the weather has moderated, there may be fuel for another leg higher in equities and interest rates.  The consensus is for no rate cut, however, and while economists expect 206,000 new nonfarm payrolls and an unemployment rate drop to 6.6%, much skepticism remains.  For the data in the books, housing softened the most last week, with new home sales down to an annualized 440k sale rate thanks to the recent rise in mortgages and the tail end of the slow season, and FHFA and S&P Case-Shiller home price indices advanced 0.5% and 0.8% MoM, respectively, however the YoY figures are now declining.  Durable goods orders rose more than expected (2.2% MoM headline, 0.2% core) but were overly aided by the transportation orders.  PMI flashes for manufacturing and services showed readings of 55.5, which are robust.  On the consumer front, both confidence and sentiment reports showed well for the period, and personal income and spending both rose 0.3% MoM in February, while both headline and core PCE price index levels were muted, meaning the Fed still won’t get too worried about inflation, even as more anecdotal metrics around food prices and rent rates make Main Street take notice.  The Federal Reserve Presidents that spoke did their best to elongate the period post-Taper until the Fed raises the target rate from the six months interpreted from Chair Yellen’s presser.
  • The first half of the week starts off slowly, with Chicago PMI this morning (59.5 consensus), ISM Manufacturing tomorrow (54.0 expected), and the ADP private payrolls report on Wednesday (193k expected for March).  After the ECB releases its policy statement on Thursday morning, the trade deficit is supposed to come in at -$39 billion, ISM services should rise to 53.3, and jobless claims will likely tick up to 320k WoW.  So the table will be set for Friday’s NFP report, wherein the workweek should rise 0.2 to 34.4 hours, hourly earnings should rise 0.2%, and private payrolls will once again grow more than the headline number (215k), meaning the government will remain a hiring drag.

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