FNMA 30-YR 4.5%
Previous close 100.844
Opened up 0.22bp @ 101.063
Economic Data:
EUR / USD 1.3823 Down 0.0070
USD / JPY 90.635 Down 0.3445
GBP / USD 1.5830 Down 0.0061
OIL 75.88 Down 1.10
Gold 1,103.20 Down 8.80
Key Economic News:
Along with the usual weekly data on claims and financial developments, productivity and costs, Kansas City President Hoenig, and factory orders…
8:30: Productivity and costs for Q4…another big surge (in productivity). With nonfarm output up at a 7.2% annual rate last quarter and hours worked still down on the quarter, we expect another huge increase in nonfarm business productivity (output per hour worked). And with compensation up at only about a 2% rate, unit labor costs should be down a bunch as well. (We assume the lone positive forecast here is a rounding error, the next highest estimate for unit labor costs is -1.0%.)
For productivity, median forecast (of 63): +6.5%, ranging from +4.3% to +8.5%; last +8.1% (Q3).
For labor costs, median forecast (of 57): -3.4%, ranging from -5.7% to +4.5%; last -5.2%.
8:30: Unemployment insurance claims…treading water? This report will help decide whether last week’s unexpectedly high level was residual clearing out of the holiday backlog or a more meaningful upturn. Hidden behind the headline figure on continuing claims, which applies to the Jan 23 week, we should get the extended benefits data for the Jan 16 payroll reference week.
For initial claims, median forecast (of 44): 455k, ranging from 420k to 480k; last 470k.
For continuing claims, median forecast (of 13): 4.581 million, ranging from 4.4mm to 4.63mm; last 4.602mm.
10:00: Factory orders for Dec…not much change? Durable goods orders did not change much overall (though underneath the surface they were firmer). Since durables make up close to half of the total, we’d expect something similar for today’s report. The inventory data bear watching; in the latest durable goods report the net change for October was revised down, and the pattern for the quarter as a whole now shows consistent, if small, net liquidation. We will be looking to see how much of that passes through to and/or is reinforced by the nondurable goods components.
Median forecast (of 65): +0.5%, ranging from -0.6% to +3.0%; last +1.1%.
14:00: Kansas City Federal Reserve President Thomas Hoenig speaks on the US economic outlook…to the Oklahoma Bankers Association. Mr. Hoenig made his rotation onto the voting membership of the FOMC known at the January meeting, when he dissented against retaining the rate commitment language.
16:30: Fed balance sheet data. As of Wednesday, January 27, the Fed had booked about $970bn of the $1.25trn committed to this program, leaving roughly $280bn to go. With another $10bn or so to go with agencies, we’re looking at close to $300bn in additional asset growth from these sources, as the only predictable offset – run off of TAF loans – is under $40bn. On the liability side, the implied increase of about $250bn should show up either in excess reserves or in a revival of the Supplemental Financing Program (currently at $5bn) after Congress approves a $1.9trn debt ceiling increase.
Advice:
Strong Productivity; Labor costs down; Claims sticky
Another strong productivity quarter, though not as strong as we thought as hours worked rose in the quarter. Unit costs remain on downward trend, so no upside on inflation from that source. Claims disappoint, both in initial (up further) and in continuing benefits; counting extended benefits, total claimants up 142k between Dec and Jan payroll survey weeks.
Key Numbers:
Nonfarm productivity +6.2% in Q4 (qoq, annualized, +5.1% yoy) vs. median forecast +6.5%.
Unit labor costs -4.4% in Q4 (qoq, annualized, -2.8% yoy) vs. median forecast -3.5%.
Initial jobless claims +8k to 480k in week ended Jan 30 vs median forecast 455k.
Continuing claims +2k to 4.602 million in week ended Jan 13 vs median forecast 4.581 million.
A mixed bag of news as productivity and labor cost improve and unemployment slips a little. Factory orders could push the market in either direction. Today might be a good day to lock in that extra profit from yesterday and this morning’s rally.
I would lock today.
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