Need To Know News

The lower-than-expected Chicago PMI data helped push US equity indices to intraday lows with DOW and S&P futures each down 1.3%. USD/JPY fell 1.35% to 103.83 and USD/CHF fell .75% to 1.0428. The greenback gave back all of its gains vs. EUR and GBP, though EUR/USD continues sustain levels just below 1.52. GBY/JPY and EUR/JPY each dropped 1.4%.

Bonds continued their advance following the data with the 30-yr. gaining nearly 1.5% and the 10yr up 1.2%. The 2-yr. yield slipped to its lowest level since ’04. European bonds as well as Fed Fund futures rallied in what has become a global flight to quality.

Final Feb. University of Michigan Consumer Confidence was revised to 70.8 from a preliminary Feb. reading of 69.6 which is still its lowest level since 1992. This is a significant drop from a Final Jan. reading of 78.4. The Current Conditions were finalized at 83.8 for Feb. which is a near 11 point drop from Jan. Consumer Expectations for Feb. fell to 62.4 versus a Final Jan. reading of 68.1. Both the Current Conditions and Consumer Expectations were at their lowest levels since 1992 as well.

Feb. Chicago PMI dropped to 44.5 from 51.5 in January, its lowest level since 2001.The New Orders Index rose to 48.8 from 44.7 while the Prices Paid Index dropped to 79.4 from 87.1.

Michigan Consumer Confidence for February is expected to come in at 70.0, slightly better than the January reading of 69.6 but still well below it’s 12 month average at 82.24. Indeed the Survey has been in a downward spiral since August of 2007 when it briefly touched above 90. The Michigan Consumer Confidence Survey is a pretty straight-forward read of what 500 consumers think about their current conditions, what they think might happen in the next year personally and about the broader economy and whether they think it’s a good time to buy durable goods (washer, tv, etc).

The 70 estimate strikes us as a bit too optimistic given the Conference Board’s abysmal Consumer Confidence data wherein Confidence fell to a 15 year low and expectations fell to a 17 year low.  Granted, the Conference Board survey has a strong labor tilt but with the 4w moving average of  Initial  and Continuing Claims running at better than a 2 year high, the pervasive subprime problem and tightening consumer credit conditions, Michigan may well come in below expectations.

The Feb. Dallas Fed Manufacturing Index of General Business Activity fell to -21.4 from -20.7 in Jan. The Output Index fell from 17.7 to 7.1.

Bonds are extending yesterday’s gains with the 30yr up 1% with a yield of 4.74% and the 10yr up 0.8% with a yield of 3.6%. The 2yr yield at 1.735% is lower than the entire short end of the curve with the 4week at 2.07% and the 3&6 months at 1.84%. Fed Fund futures are also well bid and now show a 56% chance of a 75 bp cut on March 18th.

Fixed income markets in Europe and Asia are also considerably higher with the 10yr Gilt up 0.77% with a yield of 4.49%, the Bund up 0.72% with a yield of 3.9%, and the 10yr JGB up 0.6% with a yield of 1.345%. Also of note, the Australian 10yr is up 1.5% sending its yield down 22 bp to 6.198%.