Weekly Market Preview

What’s on the agenda for this week?

A huge week this week and a huge month. By the end of this month markets should have a solid idea when the Fed will actually stop talking and increase the FF rate—-or not. This week’s data is critical, both ISM reports, personal income and spending for May, April construction spending, April factory orders, May auto and truck sales, US April traded deficit, the Fed Beige Bok, Q1 productivity and unit labor costs and…the May employment data.

April personal income increased 0.4%, a little better than thought at 0.3%, spending tough continues to show consumers are in no big rush to spend, spending expected up 0.2% but there was no increase (0%). Just another reminder, consumer spending accounts for more as much as 70% of what goes on in the U.S. economy. The savings rate jumped in April to 5.6% from 5.2%, and it’s been above 5% for five straight months; the last time that happened was two years ago. Core PCE expected up 0.2%, up just 0.1% and yr/yr +1.2% compared to yr/yr in March +1.4%; inflation based on this data is nowhere near the Fed’s target. Prior to the 8:30 report the 10 yr yield was 2.13% +1 bp, at 9:00 and ahead of 10:00 key data, -1 bp to 2.12% and 30 yr MBS prices +9 bps.

At 9:30 the DJIA opened +70, NASDAQ +28, S&P +7. 10 yr note 2.12% unch, 30 yr MBS price +1 bps. Prior to the ISM manufacturing index report at 10:00 stock indexes slipped, the DJIA at 9:55 +16; 10 yr unch and MBS price +6 bps.

At 10:00, the key data today, May ISM manufacturing index expected at 51.8 frm 51.5, as reported at 52.8, the highest read this year was in Jan at 53.5. The employment index at 51.7 frm 50.48, new orders 55.8 frm 53.5. A solid report ahead of employment on Friday. Normally the ISM data would trump April reads but along with the 10:00 ISM report that was good, April construction spending was much stronger than estimates; expected up 0.7%, spending jumped 2.2% frm March and March was revised to +0.5% frm -0.6% originally released; yr/yr construction spending +4.8%.

This week’s Calendar;

Today,
– 8:30 am April personal income as reported +0.4% better than 0.3% expected, March income revised from +0.4% to +0.5%; spending unchanged against estimates of +0.3%
– 10:00 am May ISM manufacturing index (expected
– – April construction spending (expected +0.7% after -0.6% in March, as reported
Tuesday,
– 10:00 April factory orders (0.0% frm +2.1% in March)
– No –time May auto sales (17.0 mil frm 16.5 mil in April)
Wednesday,
– 7:00 am MBA mortgage applications
– 8:15 am May ADP private jobs (+200K frm +169K in April)
– 8:30 am April trade deficit (-$44.0B)
– 10:00 am May ISM services sector index (57.2 frm 57.8 in April)
– 2:00 pm Fed Beige Book
Thursday,
– 8:30 am weekly jobless claims (276K down 6K)
– – Q1 productivity (-2.9% frm -1.9% originally reported; Q1 unit labor costs +6.0% frm +5.0% originally reported)
Friday,
– 8:30 am May employment report (unemployed 5.4%, non-farm payrolls +220K, non-farm private jobs +215K frm 213K in April, avg. hourly earnings +02%, labor participation rate 62.7% frm 62.8% in April)
– 3:00 pm April consumer credit (+$16.8B frm $20.5B in March)

The 10:00 am data this morning dented the bond and MBS markets. The ISM better, April construction spending a major surprise with the improvement. With the data this week interest rate markets likely won’t be able to improve much ahead of employment, in the meantime attention to the weekly calendar above. Last week’s rally in treasuries and MBSs setting up for this week and adjustments for quarter end; technicals looking better but this morning’s data caps any chance of improvements today. Through this week expect choppy conditions; by the time we see May employment data we don’t expect much change in rates from what we have today.

PRICES @ 10:30 AM

10 yr note: -6/32 (18 bp) 2.15% +3 bp

5 yr note: -4/32 (12 bp) 1.51% +2 bp

2 Yr note: -1/32 (3 bp) 0.63% +1 bp

30 yr bond: -22/32 (69 bp) 2.92% +3 bp

Libor Rates: 1 mo 0.184%; 3 mo 0.283%; 6 mo 0.424%; 1 yr 0.749%

30 yr FNMA 3.5 June: @9:30 104.42 +1 bp (-1 bp frm 9:30 Friday)

15 yr FNMA 3.0 June: @9:30 104.36 -5 bp (-11 bp frm 9:30 Friday)

30 yr GNMA 3.5 June: @9:30 104.75 -1 bp (-3 bp frm 9:30 Friday)

Dollar/Yen: 124.36 +0.21 yen

Dollar/Euro: $1.0916 -$0.0070

Gold: $1202.90 +$13.10

Crude Oil: $60.35 +$0.05

DJIA: 18,005.97 -4.71

NASDAQ: 5052.91 -17.12

S&P 500: 2105.10 -2.29

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