Weekly Unemployment Claims jumped unexpectedly by 36K to 482K. Continuing Claims came in at 4.599 million, nearly unchanged over the past two weeks. Dow Jones reported that the spike in Weekly Claims was due in part to a backlog of Christmas and New Year’s filings. They are calling it an “administrative thing, not an economic thing”. I’m not so sure about that when you look at Emergency Claims jumping 652K. They continue to soar due to recent extension changes (new claimants) while those already on emergency benefits are not coming off the roles.
Leading Economic Indicators were also released, up 1.1% versus the expected plus .9%. 8 of the 10 components indicated growth via month on month comparisons. The trouble with this data is that it is rear view mirror stuff, information that we already know and is priced into the market. When its release, the market blinks and moves on.
What is catching trader’s eyes this morning is China and their latest release of GDP. The plus 10.7% has the Dragon breathing fire and Wall Street worried about overheating. Given the data, China will need to curb growth sooner than later which will certainly have an effect on our economy. Stocks are taking a beating, down over 200 points. Metals, oil, commodities, and financials are all to the downside. Financials are really spooked as the Prez just held a news conference about limited bank risk taking.
The good news is that for every stock market whipping, money always runs for cover in the bond market. Even though the 10 year note looks a little tired, given the rally over the past few days and upcoming auction supply next week, the 10 year has powered through resistance and now trades a 3.61% yield. Mortgage backs have had a good day as well, up 5/32’s on the current coupon. Bullish signals are still active on daily charts but open interest has been falling. This means that as we advance (rally), volume is declining, usually a sign that a top or at least a stall is near. Makes sense into next week’s auction supply.
The other component that has kept mortgage pricing from any radical improvement is that spreads between our paper and the 10 year note are widening. Underlying reason here is the backlog of foreclosed homes that is overshadowing a recovery in housing. Servicers are holding inventory or renting it, reluctant to push it on the market for fear of further depressing values. We’re going to deal with this throughout 2010.