Rates remain flat for the week

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Published Date 5/4/2018

When Warren Buffett speaks markets pay a lot of attention. This morning on CNBC Buffett said Berkshire Hathaway bought 75 million more shares in Apple over the last three months. Apple and other tech stocks were increasingly being questioned on valuations; Apple announced it was backing away from the iPhone X. The stock market slow initially to assess his move but this afternoon stocks turned driving indexes higher after being soft most of the week.

Interest rates remain in narrow ranges over the last two weeks. This morning the 10 fell to 2.93% early, when the April employment report was reported at 8:30 am ET the 10 yr still held a little improvement and until 12:00 hardly changed and it was the same in the MBS prices holding 14 bps price improvements. When equity markets began to climb, the 10 yr dropped back to unchanged on the session at 2.95%, a tough technical level to hold on a closing basis. MBS’s came under pressure at 11:30 dropping from +13 bps to -3 bps when the stock market declined 300+ points this morning and hit its lows at 11:00; then the market turned, and rate markets lost all of the minor gains. It was extremely volatile; the DJIA traded in a 700 point range from 300 points slower to 400 points higher. This afternoon rates ended the session unchanged across the curve. Still bearish.

April employment report at 8:30; unemployment dropped to 3.9% from 4.1% in March and better than 4.0% expected. Non-farm jobs expected +191K were up 164K; private jobs expected +190k were +168K. Growth in jobs disappointed but there were increases in March jobs from what was originally released (NFP jobs were increased by 32K and private jobs were increased by 33K ). The average hourly earnings were thought to be +0.2%, as released up 0.1%, yr/yr +2.6% against forecasts of +2.7%. The labor participation rate declined to 62.8% from 62.9% in March. Stock indexes didn’t move much; the interest rate markets held the improvements before the release.

Jobs still strong, wages so far slower than most believed. The consensus after a full day of assessing the totality of the report is mostly a one-off report regarding job gains, and many interviewed on the media are dismissing the drop in average hourly earnings both monthly and annually.

Next week: Treasury will auction $73B of debt. It is the quarterly refunding with new 10s and 30s. Recent Treasury auctions have been tepid at best with less demand and somewhat sloppy. Monday, the only significant data point is consumer credit at 3:00 PM. Tuesday $31B 3 yr note auction; 6:00 am NFIB small business optimism index. Wednesday, April PPI index; $25B 10 yr note auction. Thursday, Apr CPI. Friday, April import and export prices; May conference Board’s consumer confidence index. Inflation with PPI and CPI, import and export prices and the auctions are the headliners.

Source: TBWS

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