RATES FLAT DESPITE FED WITHDRAWLS
In an odd leap, long-term Treasury yields blew up, Wednesday the worst single day in nine months. The 10-year T-note stopped at 3.88%, a level touched for the fifth time since last June, but the violence of this move threatens upward breakout. Meanwhile, mortgages held fairly well, inside the 5.25% top that has held since August.
The peculiar part: big sell-offs like this are driven by good economic news, but that’s not what we got. February sales of new and existing homes fell, new ones at the slowest pace since stats began in 1963, 303,000 annualized. Unsold inventory rose, exisiting homes from 7.8 months’ supply to 8.6 in February; new-home inventory estimates ranged from 9.2 months to 14.4, depending on overall optimism of the estimator.
Orders for durable goods picked up a half-percent in February, but hardly an economy-mover. The University of Michigan confidence measure stayed flat at 73.6, a recession level.
Unemployment claims fell 14,000 to 442,000 last week, but must drop well into the 300s to mark new hiring. The BLS says unemployment in February rose in 27 states, fell in 7, and 16 were flat. California at 12.5% unemployed rather more than offsets North Dakota at 4.1%, and Nebraska and South Dakota at 4.8%. Four states — Florida, Nevada, North Carolina, and Georgia — set all-time highs for percentages out of work.
This rate rise is likely to be intercepted by self-correctives: fewer mortgage applicants, and more bond investors. However, the wildly out of control fiscal situation will tend to prevent any quick or deep reversal — for that we would need new and ugly evidence of non-recovery.
The overall economic view is just as much a standoff as it has been for a year. The stock market is optimistic, joined by big international business, technology and health care; and the Fed seems all-out to normalize its measures, more intent on preparation to reverse stimulus than to aid recovery. Most citizens on Main Street would disagree.
The wild cards in the next two weeks are the full-stop to Fed buying government paper — effectively dropping support for all kinds, including Treasurys — and new data for March, especially payrolls.