AM Market Update and Bernanke's Last Speech as Fed Chair

A quiet but slightly better start this morning. Weekly jobless claims at 8:30 were in line with estimates; 326K -2K after last week’s claims were revised from 330K to 328K. The 4 wk average of claims declined 13,500 to 335K. Claims were at the lowest level since the end of Nov and clearly indicate firings are slowing, the first step before increased hirings begin to show up in the economy. “The world could create more jobs before we would need to worry about the global inflation genie coming out of the bottle” IMF director Christine Lagarde said yesterday.

Net foreign demand for long term treasuries declined in Nov. by $29.3B. The first outflow since August, foreigners sold both US Treasuries and US equities in the month. Adding to the outflow was a third straight month of heavy US demand for foreign securities. US accounts were net buyers of $17.9B of foreign long-term securities in the month. Country data show continued buying of US Treasuries by Chinese and Japanese accounts. Chinese holdings rose more than $12B in the month to $1.32 trillion with Japanese holdings up exactly $12B to $1.19 trillion. Those two countries continue to finance US debt.

Two data points at 10:00am. The Jan Philadelphia Fed business index expected at 8.7 from 6.4 in Dec as reported 9.4. No reaction to the slightly better index. The Jan NAHB housing market index decline from 57 to 56 in Jan. "Rising home prices, historically low mortgage rates and significant pent-up demand will drive a continuing, gradual recovery in the year ahead," said NAHB Chief Economist David Crowe. "However, the pace of the recovery could be stronger were it not for rising construction costs and inaccurate appraisals that are keeping some home sales from going through." Of the survey's three components, buyer traffic fell the hardest, down three points. Current sales conditions fell one point and future sales expectations fell three points. All the index components are still over 50, the line between expansion and contraction. A separate survey from the Mortgage Bankers Association showed mortgage applications to purchase a newly built home fell 11% in December month-to-month. This does not include any seasonal adjustments, so the drop could be attributed to slower home buying during the holiday season.

Outgoing Fed chair Bernanke will be speaking at about 11:00 this morning. We don’t expect him to say anything that will be market-moving. This will be his last scheduled speaking appearance before he retires at the end of the month.

I am still suggesting to lock your interest rates at this point because we are on the edge of a rate adjustment if the markets close even a little higher. The bond and mortgage markets are being supported today by a slightly weaker stock market. It is encouraging that the 10 yr Note has held onto most of the gains from Friday’s employment report.