Money Market Recap & Forecast
MM Recap for April 21
U.S. Treasuries were pounded last week, sending prices down and yields up. Encouraging economic reports, good gains on Wall Street and a widening belief that tough times in the credit markets are nearly over dampened enthusiasm for safe haven bonds. In addition, talk of an investigation of LIBOR made investors leery of fixed-rate assets.
Better-than-expected retail sales in March kicked off the selling binge in bonds, with sales rising 0.2% versus February’s 0.4% loss. Core sales, which eliminate gas and autos, climbed 0.1%. In a separate report, business inventories rose a hefty 0.6%, but business sales plunged 1.1%.
Inflation fears brought out sellers Tuesday when the producer price index, which checks wholesale prices, jumped 1.1% -- the second biggest increase in 33 years. But the core rate, which eliminates food and energy prices, rose by only 0.2%, putting a floor under losses. The core jumped 0.5% in February.
The NY Empire State index on April manufacturing conditions also rattled traders, rising 23 points to poke into positive territory at 0.6. The index was negative in February and March.
Housing data were the only downers on Wednesday. March starts fell 11.9% to an annual rate of 947,000 units -- a 17-year low, while building permits followed suit, falling 5.8% to an annual rate of 927,000 -- the lowest since April 1991.
The March consumer price index, which checks for retail inflation, came in on target, rising 0.3%. The more important core, which eliminates energy and food prices, rose 0.2%. And industrial production surprised many by rising 0.3%, when a negative reading was forecast. Capacity utilization ticked up to 80.5 from 80.3. Analysts noted that industrial activity is holding up better than in past economic slowdowns.
First-time unemployment claims climbed to 372,000 for the week ended April 12, while the four-week average edged down to 376,000. Meanwhile, people collecting unemployment benefits for more than one week hit 2.98 million -- the highest level since June 2004. March’s index of leading economic indicators finally clawed its way out of negative territory, rising 0.1%. Thursday’s only negative news was the Philly Fed index of April manufacturing conditions. It fell to -24.9 from -17.4, the lowest since February 2001, indicating that manufacturing conditions are worsening in the important mid-Atlantic region.
A Wall Street rally kept pressure on Treasuries early Friday, but no reports were released.
Mortgage applications were split during the week ended April 11. Applications to refinance rose 5.2%, according to the Mortgage Bankers Association, while purchase apps were off 0.8%.
Economic indicators slow to a crawl this week, but each of the five on tap could impact the markets, beginning with Wednesday’s release of March existing home sales. Once again, analysts expect sales to fall, this time to an annual rate of 4.95 million units from 5.03 million. But declines in sales are not as steep as they were just a few months ago.
New homes sales for March come out the following day, with similar results predicted. Sales should edge down to an annual rate of 585,000 units from 590,000 in February, but again, slippage is slowing. Thursday also features durable goods orders for March, which are expected to edge up 0.1%. This would be a big improvement from February’s 1.7% loss.
Initial jobless claims for the week ended April 12 are going to be closely watched in the wake of big increases over the past two weeks: up 38,000 two weeks ago, up 17,000 last week. The four-week average also remains well above 350,000, indicating labor market problems.
The week wraps up with Friday’s release of the University of Michigan’s final consumer sentiment survey for April. Analysts believe it will climb to 64.2 from 63.2, an all-time low hit two weeks ago.
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