Tradex Commentary: Weekly Jobless Claims

TRADEX GLOBAL INTERNAL COMMENTARY

Jobless claims decreased by 6k last week to 386k, with the prior week being revised up by another 5k. The number was slightly worse than consensus expectations (385k), with the 4 week average unchanged at 387k. Continuing claims were down by 15k, but still higher than expected. Joblessness continues to be a problem, with recovery coming much slower than is needed.  Prior week revisions also continue to be poor, with the jobless claims trend creeping back up towards 400k.  Tail hedges are on both portfolios as all eyes are on the Euro Summit. – Richard Travia

EXTERNAL RESEARCH COMMENTARY

The number of applications for unemployment benefits hovered last week near the highest level of the year, showing little improvement in the U.S. labor market. Jobless claims decreased by 6,000 to 386,000 in the week ended June 23, in line with the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The prior week’s reading was revised up to 392,000 from 387,000, matching an April figure as the steepest of 2012. Concern about the fallout from the European debt crisis and the so-called fiscal cliff that will face the U.S. at the end of this year may prompt employers to keep payrolls lean. Federal Reserve policy makers last week expanded a program to replace short-term bonds with longer-term debt in a bid to spur growth and trim a jobless rate that’s exceeded 8 percent for 40 consecutive months. “There is no progress,” said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. “There is clearly an underlying weakness that is troubling. The labor market is sputtering along, struggling to create jobs. The pace of consumer spending will slow in the second quarter.” The world’s largest economy expanded 1.9 percent in the first quarter, the same as previously estimated, data from the Commerce Department also showed today.

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Tradex Commentary: Pending Home Sales for May

TRADEX GLOBAL INTERNAL COMMENTARY

Pending home sales rose by 5.9% in May. This number matches the highest level in two years, and is the highest monthly gain since October 2011.  The 5.9% gain by far beat consensus expectations, which was a gain of 1.3%.  Remember that pending home sales tracks signed, but not closed sales contracts.  After remaining unchanged for 4 months, this was a welcome positive piece of news that may indicate a strong buying season (Rates remain low – The 10Y is at 1.63% this morning). Enjoy the perfect day. – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Contracts to purchase previously owned U.S. homes matched a two-year high in May, fueling optimism the housing market is poised for a recovery. The National Association of Realtors said on Wednesday its Pending Home Sales Index, based on contracts signed last month, rose 5.9 percent to 101.1. The index level matched the two-year high reached in March, while the gain was the largest since October 2011. Before March, the last time pending home sales were as high was April 2010 when buyers were rushing to beat the deadline for a home-buyer tax credit, which was about to expire, the NAR said. "The housing market is clearly superior this year compared with the past four years," Lawrence Yun, NAR chief economist said in a statement. "We're on track to see a 9 to 10 percent improvement in total sales for 2012." Economists polled by Reuters had expected signed contracts, which lead home sales by a month or two, to rise 1.0 percent after a previously reported 5.5 percent drop in April.

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Tradex Commentary: MBA Mortgage Applications, Week of June 18th

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications fell 7.1% last week.  The share of applications to refinance fell to 79% from 81% the week before.  The weekly numbers are volatile, and the recent swings have been very large.  As mentioned in previous week’s commentaries, we believe that the major refinancing wave from HARP2 is past us. 30 Year Fixed Rate Mortgages averaged 3.88% last week. Confidence continues to be the key to a strong economic recovery, and the confidence numbers reported yesterday were weak. Less refinancing activity typically equates to slower prepayments, a positive for our mortgage derivative trade.  We are maintaining our cautious stance with tail hedges, though. – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages fell last week as refinancing applications for government loans slowed, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 7.1 percent in the week ended June 22. The MBA's seasonally adjusted index of refinancing applications decreased by 8.3 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell by 1.4 percent. The refinance share of total mortgage activity fell to 79 percent of applications from more than 81 percent the week before. Michael Fratantoni, MBA's vice president of research and economics, attributed the decline to a fall-off in refinance applications for government-backed loans, which had soared the previous week. "The large swings in activity were due to the implementation of FHA's new premiums on streamline refinances, and borrowers timing their application to lower their premiums," he said in a statement. Fixed 30-year mortgage rates averaged 3.88 percent in the week, a gain of a single basis point from 3.87 the week before. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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Tradex Global Commentary: Consumer Confidence

TRADEX GLOBAL INTERNAL COMMENTARY

The consumer confidence figures were worse than expected, dropping to 62.0 from 64.4, which is a five-month low.  Consensus expectations for the Index was 63.5.  The “expectations” component dropped from 77.3 to 72.3, its lowest level since November 2011.  The view of the labor market has worsened and current payroll employment remains below the pre-recession peak levels for both the 2001 and 2007 recessions.  Confidence is key to small business owners taking a “leap of faith” and hiring new employees.  It is a good sign to see some further home price stabilization, but without confidence and hiring, the housing market will remain in limbo… Our hedges remain on, while the S&P grinds higher today.  – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending. The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, figures from the New York-based private research group showed today. Another report showed home prices were stabilizing. The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70 percent of the economy. The weak labor market is overshadowing the benefit of the lowest gasoline prices in five months, one reason why companies like Ford Motor Co. (F) are keeping an eye on attitudes. “The employment situation continues to weigh on consumer minds,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly forecast the confidence index. “Usually consumers react to falling gasoline prices by increasing their spending, but this time around it looks like they’re a little bit cautious.” Stocks fluctuated between gains and losses, held back by concern over the drop in confidence and the European debt crisis. The Standard & Poor’s 500 Index rose 0.3 percent to 1,317.79 at 12:07 p.m. in New York. Elsewhere, Britain had a larger budget shortfall than economists forecast in May as the recession hit taxes and pushed up welfare spending. The median forecast of 69 economists surveyed by Bloomberg News projected the U.S. confidence index would fall to 63. Estimates ranged from 58 to 66.8. The measure averaged 53.7 during the 18-month recession that ended in June 2009.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global