MBS LUNCH: Stocks Break Resistance. Bonds Inside Range
New Construction Spending and ISM data was released at 10am. I wrote on residential spending and related the results to existing inventory. READ IT HERE. While housing continues to stagnate near it's trough, manufacturing data has being showing signs of stable improvement over the past six months.
Not this month though...
New Orders and Production led the way lower in February with a 6.4 point decline and a 7.8 pct contraction respectively. Unfilled orders rose 5 points.
This was a worse than anticipated read. Guess where the blame is falling? On bad weather! Production slowed and unfilled orders rose...people couldn't get to work or go shopping when it was snowing. The wintry weather will have negative effects on Friday's Employment Situation Report. This sets the market up to do whatever it wants after the data prints---meaning if it is worse than expected, traders may overlook. If it is better than forecast....well that depends on how stocks do for the rest of the week. Stocks are trading higher at the moment....a key resistance level has been broken in the S&P.
Looking at a longer time line the breakout is easier to see. If sellers are out there, this is where one would expect to see them start consolidating gains/taking profits.
The 10 yr Treasury note is holding within the overnight range. Participation has been below average in the bond market today. Real money bidders are pushing prices higher while others sit and watch developments from the sidelines. The "others" are bond sellers...however as trading flows are light and prices are ticking higher, there isn't much reason to step in and sell just yet. If prices to continue to appreciate I would anticipate profit taking pick up. For now..offers are getting lifted and yields are slowly falling.
Rate sheet influential MBS coupons are trading in the green, inside the recent trend channel. The FN 4.0 is currently +0-03 at 98-11 yielding 4.16% and the FN 4.5 is +0-02 at 101-05 yielding 4.372%. The secondary market current coupon is 4.298%.
Headlines cite strength in stocks as a function of Greece bailout developments. Gains are broad based though so we have to look deeper. I say the uptick in spending in 830 econ data is the first source of strength. After that there is a buzz about an increase in M&A activity...this supports the notion that the WORST CASE SCENARIO has been avoided. New money is more likely to come out of cash when M&A activity ramps up. Overall I think the safest and simplest way to put is: the market is riding any momentum it can. It is still a trader's world.
Regarding new EU developments. The Greek finance minister has told the EU they are ready to take whatever steps are necessary to tackle the debt crisis. At 1130, the EU's Economic and Monetary Affairs Commissioner Olli Rehn said the EU is fully ready to support Greece. "AS SOON AS POSSIBLE" was stressed in his statement. He also said the market should be convinced once new measures are announced. This news started to surface over the weekend, positive progress in stocks is extending.
Blah blah..rhetoric rhetoric jaw boning. No details have been announced but it is expected that Germany and France will be buying Greek debt in the week ahead. If Greece can raise some money to fund deficit spending...it will be step 1 toward a relaxation of tensions.
The EURO is getting pounded by the US$....AGAIN.
REPRICES FOR THE BETTER IF THE FN HOLDS AT OR ABOVE 101-09.