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Yields are Edging Higher Despite Softening U.S. Data

By:
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Updated: Oct 20, 2016, 14:29 UTC

U.S. stocks are steady on Thursday following Wednesday’s U.S. Presidential debate which appears to have favored Clinton.  Earnings in the U.S. have been

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U.S. stocks are steady on Thursday following Wednesday’s U.S. Presidential debate which appears to have favored Clinton.  Earnings in the U.S. have been better than expected initially, while economic data has been weaker than expected.  U.S. yields are beginning to back up, rising above the critical 200-day moving average level, which could mark the low in yields moving forward.

Presently Fed Fund futures are pricing in a 65% chance of a December rate hike, but if the economic data continues to erode, the debate of whether to hike will enhance market volatility.  Housing data is weakening despite very accommodative mortgage rates, and manufacturing continues to slide. Jobs data continues to a point to a relatively tight labor market.

The Jobs Market Remains Tight

Jobs data released on Thursday shows a relatively tight labor market which is the cornerstone of the interest rate hike debate. U.S. initial jobless claims rose 13k to 260k in the latest week, and remains close to a 42-year low. The increase was slightly more than expected. Continuing claims increased 7k to 2,057k for the week ended October 8.

U.S. Philly Fed index declined 3.1 points to 9.7 in October, following and unrevised 10.8-point jump to 12.8 in September.  The employment component improved slightly to -4.0 from -5.3, and has been in negative territory since December. Oil prices gains will likely start to improve this number. The workweek was at -2.2 from -11.7, a 7th straight month of contraction. The new orders index climbed to 16.3 versus September’s 1.4. Prices paid dropped to 7.0 from 20.6, while prices received declined to -3.7 from 9.7. The future employment index rose to 25.9 from 24.8, with new orders at 39.3 from 36.7, prices paid at 42.4 from 42.1, and capital expenditures at 21.2 from 8.6.

Housing starts released Wednesday showed a 9.0% plunge, which was slightly offset by stronger permits. Weakness was focused in multi-family units, which are generally considered investment properties, but extended across all regions but the west. Starts under construction fell 0.1% to leave the which was the since August of 2011. Completions tumbled 8.4% drop. The Q3 weakness in headline starts and completions, as well as new residential construction, is concerning and could be a reason that the Fed keep rates on hold, or tightens in December but keeps a dovish tone.

Mortgage rates were steady in the latest week while  auto-loan rates, remain at historic lows. The U.S. MBA mortgage market index rose 0.6% in the latest week, along with a 0.8% decline in the refinance index.  This came in tandem with a 5 basis point rises in the average 30-year mortgage rate to 3.73%, tracking the rise in global bond yields.

Global rates were also steady, as the ECB kept interest rates unchanged and failed to discuss a quantitative easing extension.  Draghi in his press conference said that the risks for the European economy are tilted to the downside and the central bank will use all the tools at its disposal to buoy the European economy.

This is a guest post written by Rebecca Kennedy, from The Net Lender

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