The Day Ahead: Durable Goods, Jobless Claims, New Home Sales, $29bn 7s

The 10-year Treasury note traded in a yield range of 3.49% to 3.44% overnight, after giving up three basis points and closing at 3.49% yesterday.  Rates are lower this morning as light crude oil prices have hit triple-digits for the first time since September 2008 in unison with riots in Libya which continue to spark sell-offs in global equity markets.

“The flight-from-risk theme continues this AM as oil prices hit new highs,” said analysts at BMO Capital Markets, noting that while light crude oil cracked the $100 mark, Brent crude jumped to nearly $120.

S&P 500 futures are down 5.25 points to 1,300.25 and Dow futures are trading 29 points down at 12,065. In the first two days of this week, the Dow lost 285 points, or 2.3%. Light crude oil is up for the sixth straight session at $100.63 per barrel, or 2.56% up on the day. Gold prices are 0.42% higher at $1,417.65 per ounce.

Key Events Today:

8:30 ― New Orders for Durable Goods should rebound by 3% in January, economists say. The anticipated jump follows declines of 2.5% and 0.1% in the prior two months. A sharp decline in commercial aircraft orders was the culprit in the last two months of 2010, whereas January should lifted by upwards trends in consumer and business confidence.

“The underlying story is that manufacturing orders are doing very well,” said economists at IHS Global Insight. “Orders did take a drubbing in December as aircraft manufacturers took in $3.6 billion more in cancellations than in new orders, so a return to positive territory for aircraft orders will boost total orders substantially.”

8:30 ― Initial Jobless Claims have been too volatile to be of much use in 2011. The last survey showed 410k claims in the week ending Feb 12, versus 385k, 419k, and 457k in the previous three weeks. The four week average is currently 417,750, indicating that not much has happened since December when claims averaged 414k per week. Economists look for 410k claims in this survey.

“We are cautiously optimistic about the labor market and expect initial claims data to fluctuate near a moving average in the 410k's over the coming weeks,” said economists at Nomura Global Economics.

8:30 ― James Bullard, president of the St. Louis Fed, speaks on “Monetary Policy Outlook for 2011.”

10:00 ― New Home Sales jumped an unsustainable or quirky 17.5% in December, leading economists to expect downward revisions or a correction in the January report. The consensus looks for the annualized pace of sales to come in at 310k, down from 329k at the end of 2010. The range of estimates ― from 280k to 340k ― reflects the market uncertainty of the general trend here.

“New home sales unexpectedly spiked in December, led by a rather mysterious 70% spike in activity in the west region,” said economists at Janney Capital Markets. “A rise of that magnitude is inherently suspicious, and potentially the result of a one-off transaction such as a developer liquidating a group of properties.”

Ignoring that jump, they said the underlying trend is “downright dismal, as consumers are displaying a clear preference for picking up existing properties at a discount rather than new homes at full price.” Janney said to expect a reversal in the index.

“The new home sales numbers are jumpy, subject to revisions, and not well estimated,” added economists at IHS Global Insight. “For these reasons, we recommend focusing on recent trends rather than on the latest monthly estimates.  A three-month moving average shows new home sales still stuck at the bottom, with sales starting to pick up in the West, flat in the South but declining in the Northeast and Midwest.”

10:00 ― The FHFA House Price Index looks at single-family housing sales using data provided by Fannie Mae and Freddie Mac. The index is limited, has little market impact relative to the S&P Case-Shiller index, and there is no consensus of forecasts from economists. The latest index for November showed that prices fell 0.4% after a flat reading in October. The three-month average was down 0.7%.

Treasury Auctions:

    * 1:00 ― 7-Year Notes ($29 billion)