June 20, 2013

Fed Exit: you’re gonna hate the way this looks, I guarantee it

June 20, 2013

Fed Exit: you’re gonna hate the way this looks, I guarantee it

Below is a roundup of today’s fundamentals, and a word on the Fed exit. The extreme bond selloff that started yesterday continues today, sending rates higher still.

Jobless Claims (week ended 6/15/2013)
– Initial Claims 354,000. Previous revised to 336,000.

– 4-Week Moving Average 348,250. Previous revised to 345,750

PMI Manufacturing Index (June 2013)
– Level 52.2. Previous was 51.9.

A reading above 50 still indicates growth but growth in manufacturing has been declining.

Existing Home Sales (May 2013)
– Existing Home Sales (Seasonally Adjusted, annualized) 5,180,000. Previous was 4,970,000

– Existing Home Sales Month/Month 4.2%

– Existing Home Sales Year/Year 12.9%

– This is the highest level since November 2009. The November 2009 level was the consequence of the impending end of a home buyer tax credit. The May data is more important. We will now see how higher interest rates affect home buying.

Philadelphia Federal Reserve Survey (June 2013)
– General Business Conditions Index +12.5. Previous was -5.2.

Leading Economic Indicators (May 2013)
– Leading Indicators +0.1%. Previous was +0.6%.

And a word on yesterday’s Fed reaction…
Yesterday’s market reaction to FOMC was strange. Bernanke said what he has been saying all along, namely that the Fed would (and I am simplifying) start easing off QE when unemployment started dropping more. To me this was the same as “the sun rises in the east.” That is, everyone knew this. What happened? More people started selling bonds, equities and gold than were buying bonds, equities and gold.

For those of us concerned about mortgage rates this created a technical situation which is close to worst case. Treasury bond and note prices are falling through support levels. Free-falling prices could send yields up another 0.375%.

To judiciously paraphrase George Zimmer, “You’re gonna hate the way this looks. I guarantee it.”