MBS MID-DAY: Back To Yesterday's Range After Morning Weakness

MBS Pricing Snapshot

- Business Conditions -10.7 vs +2.0 consensus, +5.7 Oct
- New Orders -4.6 vs -0.6 Oct
- Employment -6.8 vs -10.7 Oct
- Philly Fed says "influence of Storm Sandy evident in firm's responses

"Firms responding to the November Business Outlook Survey reported declines in business activity this month following the disruptive effects of Hurricane Sandy on the region. The survey’s indicators for general activity, which had shown improvement in October, fell back into negative territory this month. Firms reported slight declines in shipments, employment, and hours worked. Indicators for the firms’ expectations over the next six months were near their levels in the previous month, but expectations for future employment and capital spending have weakened in the last two months."

The overnight session was mostly slow, but mostly negative for bond markets. GDP for the entire Eurozone fell 0.1 pct though France and Germany managed 0.2 pct increases. That was enough to fuel a risk-on bid in European hours in addition to some big trades that were unrelated--at least in timing--to any reported data or events.

All that aside, 10yr yields traded inside yesterday's range all morning and have been holding ground so far in the domestic session. MBS walked in the door several ticks weaker than yesterday's latest levels, but have since battled back to unchanged levels.

Much weaker than expected Jobless Claims numbers made the morning interesting stateside as mega-storm Sandy apparently had a much bigger effect than economists predicted, causing the biggest week-over-week increase since 2005 and the highest outright level since April 2011.

Bond markets rallied on the data, but faced two countercurrents. The first was from the data itself, which was such a jump, and so far from expectations that it makes it hard to filter out organic economic weakness vs temporary impact from Hurricane Sandy.

Then there's Europe... European news and events continue to provide a nagging, persistent push in a "risk-on" direction this morning. It's nothing major, but it is pushing back on the post-claims weakness after comments from Spain's Economy Minister saying that Spain has no need for money from the IMF. German Bunds spiked on the headline and the Euro rose to its highest levels in a week.

While not having any major effects on bond market trading at home, the risk-on moves don't help yields move lower. Stocks are moving higher after the 9:30 open as well, but not triumphantly so with S&P futures about 5 points higher than yesterday's close. 10yr yields are up just under 2 bps at 1.608. Fannie 3.0 MBS are up 1 tick at 104-26. Philly Fed data is coming up at 10am, and given the bigger than expected hit to Claims, one might reasonably expect a bigger jump there as well.

- CPI +0.1 vs 0.1 consensus
- Core CPI + 0.2 vs +0.1 consensus
- Officials says "virtually no impact" from Sandy

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.2 percent before seasonal adjustment.

The shelter index increased 0.3 percent, its largest increase since March 2008, and accounted for over half of the seasonally adjusted all items increase. The index for all items less food and energy rose 0.2 percent, as the rise in the shelter index and increases in the indexes for apparel and airline fare more than offset declines in the indexes for used cars and trucks, new vehicles, and recreation.

The food index increased 0.2 percent in October with the index for food at home rising 0.3 percent, its largest increase since September 2011. The energy index, which had risen sharply in August and September, declined slightly in October. Major energy component indexes were mixed, with declines in the indexes for gasoline and natural gas more than offsetting increases in the indexes for electricity and fuel oil.

The 12-month change in the index for all items was 2.2 percent in October, an increase from the September figure of 2.0 percent. The 12- month change in the index for all items less food and energy remained at 2.0 percent. The food index rose 1.7 percent over the last 12 months, and the energy index increased 4.0 percent.

- Claims 439k vs 375k Consensus
- Highest since April 2011
- Biggest increase since Sept 2005
- Increases mostly in mid/north-Atlantic region

In the week ending November 10, the advance figure for seasonally adjusted initial claims was 439,000, an increase of 78,000 from the previous week's revised figure of 361,000. The 4-week moving average was 383,750, an increase of 11,750 from the previous week's revised average of 372,000.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending November 3, an increase of 0.1 percentage point from the prior week's revised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 3 was 3,334,000, an increase of 171,000 from the preceding week's revised level of 3,163,000. The 4-week moving average was 3,254,500, an increase of 17,750 from the preceding week's revised average of 3,236,750.