U.S. interest rates are better this morning with the U.S. stock markets opening lower on reports out of China showing its economy is slowing more than thought. Chinaâ€™s GDP rose 8.1% in the first quarter from a year earlier following an 8.9% increase in the fourth quarter, the National Bureau of Statistics in Beijing said today. That was less than the 8.4% growth predicted. Chinaâ€™s economy is slowing as exports decline to Europe and the U.S. The latest data shows imports are also slowing.
Europeâ€™s debt problems are back as we noted previously. Average net borrowings by Spanish banks climbed to 227.6 billion euros last month from 152.4 billion euros in February, the Bank of Spain said. lenders in the whole euro system took 361.7 billion euros, the data showed. Spanish government bonds are headed for a second weekly decline, a sign the respite in the regionâ€™s debt crisis created by the ECBâ€™s three-year loan program may be coming to an end. 17 of 22 economists surveyed this week predicted the ECB will be forced to resume its so-called Securities Markets Program to contain bond yields. In Italy there are protests by labor unions against the austerity plans being implemented. Prime Minister Montiâ€™s pension plan was part of a $26 billion austerity package passed in January to fight the sovereign crisis by putting Italyâ€™s debt, the second highest in Europe after Greece, on a downward trajectory from next year.
With slowing in global economic growth comes an increasing belief the Federal Reserve will institute another QE soon. Europeâ€™s debt crisis is adding support to lower interest rates. The recent swift decline in rates after the 10-Year Note spiked to 2.40% may be already discounting another easing action. This morning the stock indexes are lower after two days of improvement. The 10-Year Note hit 2.00% this morning.
At 830am the March Consumer Price Index was right on estimates. The overall CPI increased 0.3% from February: year-to-year up +2.7%. The core rates (excluding food and energy) were up +0.2%, year-to-year up +2.3%. There was no immediate reaction to the report.
At 930am the DJIA opened down -41 points, the 10-Year Note at 2.01% (-4 bps) and mortgage prices up + 6/32 (.18 bps).
The last data this week, at 955am is the University of Michigan/Reuters Consumer Sentiment Index was expected unchanged at 76.2, it fell to 75.7; the current conditions index at 80.6 from 86.0; expectations at 72.5 from 69.8 and the 12-month outlook at 87 from 79. The stock market worsened further and the bond market gained a little with the 10-Year Note at 2.00% and MBS prices .06 bps better than at 930am.
Federal Reserve Chairman Ben Bernanke will speak to the Russell Sage Foundation and The Century Foundation on â€œRethinking Financeâ€ at 100pm today and will take questions from the audience. More than likely he will field questions on what the Federal Reserve may be prepared to do, his outlook on the U.S. economy and the Fedâ€™s course of keeping the FF rate at zero to +0.25% for the next two and a half years.
Two readings on employment recently, the March Employment Report and yesterdayâ€™s Weekly Jobless Claims both added concern about the status of the economy. Tie that to the renewed fears of debt problems, the economic decline in Europe and slower growth in China and you have a momentary perfect storm for lower interest rates. But how much lower will longer-term rates fall is the ultimate question. The 10-Year Note is just 10 bps higher now than where it has recently encountered major resistance at 1.90%. The rate did fall below 1.90% a few times but each time it couldnâ€™t be sustained (only fifteen days since last September). The majority of trading on the 10-Year Note since the beginning of last September has been between 2.10% and 1.90%.
This week had very little key economic data, only Weekly Jobless Claims. Next week there are a number of key measurements; March Retail Sales, April Empire State Manufacturing, April Philadelphia Federal Reserve Business Index, March Housing Starts & Permits, March Existing Home Sales, March Industrial Production and Factory Usage. A lot of data that pending the results may either encourage more QE talk or dampen it. The next FOMC meeting is on Tuesday the 24th and Wednesday the 25th.
Putting it in perspective this week the 10-Year Note has been tied to a 7 bps range and mortgage prices so far this week have traded in an 8/32 (.25 bps) range (103.14 to 103.06). For all the angst and talk the rate markets were essentially flat this week , at least through 1000am this morning.