MBS MID-DAY: Overnight Gains Hold After Data; Resistance in Play

MBS Pricing Snapshot

- Main index 81.5 vs 79.0 forecast
- Last month revised to 81.0 from 80.3 previously
- Present Situation Index 70.7 vs 73.6 previously
- Expectation Index 88.7 vs 86.0 previously
- Jobs "hard to get" 33.0 vs 35.2 previously, lowest since Sept 2008

Market reaction: Treasuries weaken just over 1bp in 10yr yields. MBS shed a few ticks but neither are following through with further selling as yet.

The Conference Board Consumer Confidence Index®, which had declined in July, increased slightly in August. The Index now stands at 81.5 (1985=100), up from 81.0 in July. The Present Situation Index decreased to 70.7 from 73.6. The Expectations Index increased to 88.7 from 86.0 last month.

The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was August 15.

Says Lynn Franco, Director of Economic Indicators: “Consumer Confidence increased slightly in August, a result of improving short-term expectations. Consumers were moderately more upbeat about business, job and earning prospects. In fact, income expectations, which had declined sharply earlier this year with the payroll tax hike, have rebounded to their highest level in two and a half years. Consumers’ assessment of current business and labor market conditions, on the other hand, was somewhat less favorable than last month.”

Consumers’ assessment of current conditions moderately declined. Those stating business conditions are “good” decreased to 18.4 percent from 20.8 percent, while those stating business conditions are “bad” was virtually unchanged at 24.8 percent. Consumers’ appraisal of the labor market was mixed. Those claiming jobs are “plentiful” decreased to 11.4 percent from 12.3 percent, while those claiming jobs are “hard to get” declined to 33.0 percent from 35.2 percent.

- 20 city up 0.9 vs +1.0 forecast
- +2.2 unadjusted vs +2.3 forecast
- +12.1 pct annually vs 12.1 forecast
- Market Reaction: none

Data through June 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed that prices continue to increase. The National Index grew 7.1% in the second quarter and 10.1% over the last four quarters. The 10-City and 20-City Composites posted returns of 2.2% for June and 11.9% and 12.1% over 12 months.

All 20 cities posted gains on a monthly and annual basis. However, in only six cities were prices rising faster this month than last, compared to ten in May. Dallas and Denver reached new all-time highs as they did last month, with returns of +1.7% each in June. San Francisco’s rebound is the largest, up 47.0% from its low in March 2009. Phoenix is second, 37.1% above its September 2011 low.

If yesterday afternoon's Kerry speech wasn't enough for bond market to get wholeheartedly involved with the flight to safety move (stock prices down, bond prices up) suggested by equities, today is shaping up differently. The wires are rife with Syria-related headlines--most of them sounding reasonably austere. Here are some highlights:

• GENEVA - VISIT BY U.N. CHEMICAL WEAPONS INSPECTORS IN SYRIA POSTPONED UNTIL WEDNESDAY TO "IMPROVE PREPAREDNESS AND SAFETY" - U.N. STATEMENT - RTRS
• BRITAIN IS CONSIDERING 'PROPORTIONATE RESPONSE' TO SUSPECTED CHEMICAL WEAPONS ATTACK IN SYRIA - PM'S SPOKESMAN - RTRS
• Tuesday, August 27, 2013 1:47:40 AM TURKISH FOREIGN MINISTER SAYS "CRIME AGAINST HUMANITY" CANNOT GO UNANSWERED IN SYRIA, TEST FOR INTERNATIONAL COMMUNITY - RTRS
• MOUALEM SAYS SYRIA WILL PRESS ON WITH MILITARY CAMPAIGN DESPITE ANY POSSIBLE FOREIGN STRIKES - RTRS
• Tuesday, August 27, 2013 4:42:12 AM BRITISH PRIME MINISTER CAMERON RECALLS PARLIAMENT FROM SUMMER BREAK TO DISCUSS SYRIA ON THURSDAY - RTRS
• U.S. MILITARY "READY TO GO" IF OBAMA ORDERS ACTION OVER CHEMICAL WEAPONS ATTACK IN SYRIA, U.S. DEFENSE SECRETARY TELLS BBC - RTRS
• SYRIA OPPOSITION HAS HANDED WESTERN POWERS LIST OF SUGGESTED TARGETS FOR STRIKE - SOURCES - RTRS
• "The US government asked Greece to provide its military bases in Kalamata and Souda, in case Washington decides to directly intervene in Syria." - Ekathmerini.com

Global markets have been pushing the flight-to-safety bid all night with the onset of European hours seeing the biggest drop for stocks and bonds. Treasuries may be reluctant participants now, but 'reluctant' is the key word. Case in point, S&Ps are down nearly 20 points while 10yr yields are less than 4bps lower so far this morning.

Still, we are indeed seeing bond markets 'play the game,' as it were. Buyers were lined up at the 8:20am CME open and provided another jolt lower for 10yr yields, which are now challenging an important horizontal pivot at 2.75%.

MBS opened a few ticks higher and have improved from there with 4.0s up 7 ticks to 103-12 so far. Moments ago, Case Shiller Home Prices came out slightly weaker than expected, but had no material impact on trading levels. The morning's major data is Consumer Confidence at 10am and the reaction to that--the extent to which bond markets favor the important data over the global headlines---will be informative for the rest of the day and week. As of this moment, the 2.75 zone (the inability to break it) is the most informative development so far.