Monday 6/2/08 .... Not Much Change After the Morning's Data

By: Matthew Graham •

In A Word:

Despite some stronger than expected data, MBS holding small gains on the day between 5 and 7/32nds in the current (6.0) coupon.  No other scheduled reports for the day. 

To Lock or Float?

Indicators are mixed.  Normally, we would want to lock in the "rebound" gains from the sell off that occurred last week. Indeed, if you have a price-sensitive transaction, locking still makes sense, but we are seeing some signs to float as well.  The Dow is down, and treasuries are performing better than MBS today (this probably has to do with news from Wachovia (see below).  As long as the Dow stays in that negative territory and we dodge any further "headline risk," floating at least up to lock cutoffs makes sense.  The decision to float through tomorrow will depend on variables we won't be able to consider until the end of the day. 

The Numbers:

  1. 5.5 FNMA 30 YEAR ............... Price : 99-14 ( 99.4375)
  2. 6.0 FNMA 30 YEAR ............... Price: 101-17 (101.53125)
  3. 10 Year Treasury:    ............... Yield: 4.005
  4. 5 Year Treasury: .....................Yield: 3.33
  5. DJIA                   ..................... -127.43

The News:

  1.  ISM MFG Index.
  • This is a survey that tracks many different business conditions for over 300 manufacturing firms.  A reading over 50 indicates expansion, while under 50, contraction.
  • Actual 49.6
  • Analysts Estimates 48.5
  • Also of note: Although this was a four month high yet it was was the 5th time in the last 6 months that the survey has showed contraction
  • Final Demand (new orders minus new inventories) remains positive.  It is normally negative in and leading up to a recession
  • The Verdict: It's a mixed back.  On one hand still weak, but on the other hand, the Street always likes better than expected results, and will especially appreciate that "Final Demand" is still positive.  But since we are still under 50.0, and with more noteworthy news taking center stage, this is not much of a detractor from MBS today, even though stronger than economic data usually hurts.
 
2.  Construction Spending
  • This report tracks the changes in the dollar value of money spend on residential, non-residential, and public projects
  •  Analysts Consensus: -.6%
  • Actual:                       -.4%
  • Of Note:
    • This is 6 of the last 7 months that spending has fallen despite the better than expected reading.
    • Residential Spending has dropped at a record 20.8% pace from a year ago
    • Commercial and Manufacturing Spending actually rose slightly, confirming that residential is indeed the drag
  • The Verdict: Another mixed report, largely in line with expectations.  Not much of an impact on today's action
3. Shake Up at Wachovia
  •     Wachovia's CEO was fired.  Their stock has plummeted to its lowest level in over 10 years.  In general, because of Wachovia's size, bad news for them creates fear for others.  full story 
  

On Tap For The Rest Of The Week:

TUESDAY

    - Factory Orders 1000 ET

WEDNESDAY

    - ADP EMPLOYMENT 815 ET

    - PRODUCTIVITY AND COSTS 830 ET

    - ISM Non-Mfg SURVEY 1000ET

    - PETROLEUM STATUS 1030ET

THURSDAY

    - JOBLESS CLAIMS 830ET

    - MONEY SUPPLY 430ET

FRIDAY

    - NON-FARM PAYROLLS 830ET

    -  WHOLESALE TRADE 1000ET

    -  CONSUMER CREDIT 300ET