MBS MID-DAY: AM Data Not Enough to Dissuade Range Trade

MBS Pricing Snapshot

Bond markets have bounced back reasonably well from earlier weakness, though they're already looking blocked by resistance near the better levels of the day. If anything, the biggest factor so far, has been the cash open for equities as the stock lever has been well-connected since 9:30am.

Weaker Consumer Confidence made for a decent initial move higher for MBS and lower for Treasury yields, but it lasted all of 4 minutes before opting to remain inside the day's range.

The Fed is currently conducting a scheduled buying operation in 30yr territory. That concludes at 11am (results out 2-3 minutes after) and is the best bet for a near-term shift in momentum (or acceleration). Given the equivocal response to data so far today, the afternoon's 5yr Note auction (1pm) may indeed provide a course correction.

- Confidence 71.2 vs 75.0 Forecast, 79.7 previously
- Present Situation 70.7 vs 73.5 previously
- Expectations 71.5 vs 84.7 previously
- Jobs 'hard to get' 35.8 vs 33.6 previously

Market Reaction: Markets were well within their right to expect the first of the October data to reflect the shutdown, especially when it comes to what we'd expect to be one of the more correlated data sets, but the right wasn't exercised enough! Biggest volume of the day in Treasury Futures and bond markets bouncing back. Until tomorrow's ADP, the employment component of this Confidence data is one of the best early indicators we have of next week's NFP. The 35.8 reading vs 33.6 means respondents said jobs were harder to get in October.

The Conference Board Consumer Confidence Index®, which had declined moderately in September, decreased sharply in October. The Index now stands at 71.2 (1985=100), down from 80.2 in September. The Present Situation Index decreased to 70.7 from 73.5. The Expectations Index fell to 71.5 from 84.7 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 October 17.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer confidence deteriorated considerably as the federal government shutdown and debt-ceiling crisis took a particularly large toll on consumers’ expectations. Similar declines in confidence were experienced during the payroll tax hike earlier this year, the fiscal cliff discussions in late 2012, and the government shutdown in 1995/1996. However, given the temporary nature of the current resolution, confidence is likely to remain volatile for the next several months.”

- Home Prices +0.9 vs +0.6 forecast in Aug
- +12.8 pct year/year vs +12.5 forecast

Data through August 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 the 10-City and 20-City Composites increased 12.8% year-over-year. Compared to July 2013, the annual growth rates accelerated for both Composites and 14 cities.

On a monthly basis, the 10-City and 20-City Composites gained 1.3% in August. Las Vegas led the cities with an increase of 2.9%, its highest since August 2004. Detroit and Los Angeles followed with gains of 2.0%.

"The 10-City and 20-City Composites posted a 12.8% annual growth rate,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Both Composites showed their highest annual increases since February 2006. All 20 cities reported positive year-over-year returns. Thirteen cities posted double-digit annual gains. Las Vegas and California continue to impress with year-over-year increases of over 20%. Denver and Phoenix posted 20 consecutive annual increases; Miami and Minneapolis 19. Despite showing 26 consecutive annual gains, Detroit remains the only city below its January 2000 index level."

10yr Treasuries opened the overnight session moving into weaker territory (higher yields) accompanied by mini-rallies in equity indices. They leveled off before cresting 2.531 and haven't move higher since.

European hours saw things bounce back for bonds despite more slow and steady improvements in equities. But 10's bounced at 2.509 and headed back in the other direction into the domestic session--opening near unchanged, along with MBS.

Both moved slightly weaker following the as-expected Retail Sales and PPI data sets. In both cases, the headline data was actually weaker than forecast, but the "core" readings (which strip out more volatile components) weren't any more bond-friendly than the default environment.

The volume response to the important and long-awaited report was underwhelming at best. If bond markets were excited, in any way, to see Retail Sales, we wouldn't know that based on today's reaction. As for now, support has held at weaker levels (but just barely) and we're waiting to see if any of the day's remaining data changes that, or helps us challenge the stronger levels.

- Producer Price Index (PPI) -0.1 vs +0.2 Forecast
- Core PPI (excluding food/energy) +0.1 vs +0.1 Forecast
- Market Reaction: Not only do markets not care about one PPI report in and of itself, but they especially don't care when the Core reads 'as-expected.' Next...

The Producer Price Index for finished goods fell 0.1 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods rose 0.3 percent in August and were unchanged in July. At the earlier stages of processing, prices received by producers of intermediate goods advanced 0.1 percent, and the crude goods index increased 0.5 percent. On an unadjusted basis, prices for finished goods moved up 0.3 percent for the 12 months ended September 2013, the lowest 12-month change since a 2.0-percent decline in October 2009.

- Sept Retail Sales, Excluding Autos +0.4 vs +0.4 Forecast
- Excluding autos/gas/bldg materials +0.4 vs +0.4 forecast
- Overall Retail Sales -0.1 vs +0.1 forecast
- Market Reaction: heading into weaker territory now after stronger territory was given a chance in the first few minutes.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $425.9 billion, a decrease of 0.1 percent (±0.5%)* from the previous month, but 3.2 percent (±0.7%) above September 2012. Total sales for the July through September 2013 period were up 4.5 percent (±0.5%) from the same period a year ago. The July to August 2013 percent change was unrevised from +0.2 percent (±0.2%)*. Retail trade sales were down 0.2 percent (±0.5%)* from August 2013, but 3.1 percent (±0.7%) above last year. Nonstore retailers were up 8.9 percent (±2.1%) from September 2012 and miscellaneous store retailers were up 6.2 percent (±4.9%) from last year.