Markets started quietly this morning with interest rates continuing relatively unchanged over the past two weeks. The stock indexes in pre-opening trade were hardly changed from yesterday’s unchanged levels. 8:30 data didn't generate much response in either the bond or stock market. 
 
Weekly jobless claims were expected to be 6K were down 5K at 371K; last week’s claims revised from 36K to 371K. Unemployment claims still holding at what many see as not much improvement in the labor markets. Claims above 350K seem to be the level that analysts think is the pivot point for improvement. The Labor Dept. said there were no unusual effects in this report and no states were estimated. Recent claims data were considered distorted due to quarterly revisions and weather issues that required Labor to use estimates for some states. The four-week moving average of jobless claims, a less- volatile measure, fell to 350,500, the lowest since March 2008, from 352,750.
 
Q4 productivity was expected down 3.1%, as reported it declined 2.0%, the decline was the most in the last two years. Q3 productivity was +3.2%. When productivity falls unit labor costs increases; Q4 unit labor costs were thought to be up 3.1%, as reported costs increased 4.5%. The decline in productivity may imply employers have run out of methods to keep frm new hires. In Q3 unit labor costs were +2.3%. 
 
At 9:00 the DJIA futures were -1; the 10 yr note unchanged at 1.96% while 30 yr MBS prices were -1 bp. All markets flat at 9:00. At 9:30 the DJIA opened -19, NASDAQ -2, S&P -1; 10 yr note 1.97% unchanged while 30 yr MBS prices were unchanged from yesterday’s close. 
 
Since the end of January the 10 yr note based in a closing basis has traded in a 6 bp range. The stock market since the end of January hasn't moved much, the DJIA unable to break above 14K but also able to hold without seeing any significant selling. We still look for a correction in the bond and mortgage markets that will push interest rates down a little, however the longer outlook will remain bearish as long as the economic outlook and the stock markets continue to improve. Most of this month’s attention will be on discussions about the sequestration coming on March 1st. $85B of mandatory spending cuts set up by Pres. Obama back in 2011 to get the debt ceiling increased are going to kick unless the parties can agree on another ‘push the can down the road again’ deal. Much of the automatic cuts will be on defense; even Republicans agree that is a serious cut but so far the party is standing firm on no tax increases that Democrats and Obama want. Investors may sit out buying this month as the debate heats up through the month. 

 


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