Yesterday we got another bit of information to work on:
- Weekly Initial Unemployment Claims increased to 336,000, 4-week average lowest since November 2007
In the week ending August 17, the advance figure for seasonally adjusted initial claims was 336,000, an increase of 13,000 from the previous week’s revised figure of 323,000. The 4-week moving average was 330,500, a decrease of 2,250 from the previous week’s revised average of 332,750.
The advance number of actual initial claims under state programs, unadjusted, totaled 279,026 in the week ending August 17, a decrease of 3,997 from the previous week. There were 311,857 initial claims in the comparable week in 2012.
- US Manufacturing recovey gains momentum as order growth hits seven month high
The Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) signalled the strongest improvement in manufacturing business conditions in five months during August. The flash PMI index, which is based on approximately 85% of usual monthly replies, was up slightly from July’s 53.7 to 53.9, and suggested a moderate expansion of the manufacturing sector.
All good up to now, but have look at this:
- Mortagage Rates up on Taper timing speculation
Freddie Mac today released the results of its Primary Mortgage Market Survey (PMMS®), showing average fixed mortgage rates following bond yields higher, and reaching new highs for the year, with the expectant release of the Fed’s comments around taper timing of its bond purchase program.
30-year fixed rate mortgage (FRM) averaged 4.58 percent with an average 0.8 point for the week ending August 22, 2013, up from last week when it averaged 4.40 percent. A year ago at this time, the 30-year FRM averaged 3.66 percent.
15 year FRM this week averaged 3.60 percent with an average 0.7 point, up from last week when it averaged 3.44 percent. A year ago at this time, the 15-year FRM averaged 2.89 percent.
Time and time again in these pages I have stressed out that the underlying US market force had to be found in the housing market and I have doubted (time and time again) the sustainability of a recovery based only on the housing market and now that the “underlying” force is perceived as weakening ( although recalling the Fed minutes several members expressed confidence the housing recovery would be resilient in the face of higher rates) due to higher rates we have that retail investors dumping risk assets to fly into cash.
Have a look at these charts from BofA Merrill Lynch:
US equity funds have been hit by tapering concern, with largest weekly outflow in more than 5 years.
Thus, if the marginal seller has to be found in US equity funds and recalling that they were underperforming the benchmark what might happen if the following chart correctly will represent the future market path?
They will increase their equity exposure searching to get back on track with their performance therefore becoming the “new” marginal buyer.
And what if are we moving from an housing based to a “cross sectors” growth?
In my opinion the only way out for the Fed and for what I wrote in the past for the world economy to get back on an healthy path will be to “transmit” the idea that higher rates mean an healtier economy while giving a “negative” meaning to central bank intervention. Does all this mean to turn upside down the “belief system” we have been trading on for the past few years? Yes