The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Durable goods orders, ex non defense aircraft, rock!

Mar Durable Goods headline unexpectedly fell by 1.3% vs a forecasted rise of .2% BUT, ex transports, orders rose a solid 2.8%, well above estimates of a gain of .7%. Non Defense Capital Goods ex Aircraft rose 4% after a 2.1% gain in Feb and is up 12.5% y/o/y. A 67% drop in non defense aircraft weighed on the top line, offsetting the 2.2% gain in vehicles/parts. Helping the core portion were solid gains in computers/electronics, electrical equipment, machinery and primary metals. Inventories rose .2% but the inventory to shipments ratio fell to 1.67 from 1.69 as shipments, which get directly plugged into GDP, rose 1.2%. Bottom line, the figure ex aircraft was solid and gives even more reason for the FOMC next week to alter, whether thru rhetoric or action, their extraordinarily accommodative stance.

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In response to the cnbc report earlier that some Fed members are becoming more vocal about, sooner rather than later, selling some of the MBS they just finished buying, the 30 yr FNMA coupon is up 4 bps to a 2 week high and the spread to the benchmark 10 yr yield is at 70 bps, the widest since March 2nd. It got as tight as 59 bps on March 10th and was as wide as 237 bps in March ’08. The Fed started their purchase program in Nov ’08 in order to not only lower mortgage rates but to compress the spread between MBS and US Treasuries. It was completed at Q1 end.

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March New Home Sales totaled 411k, 86k above expectations as the clock ticks on the expiration of the home buying tax credit and buyers rush to take advantage. It’s the highest since July ’09 and Feb was revised up to 324k from the initial record low reading of 308k. Combining the improved sales with a reduction in the absolute number of homes for sale and the inventory to sales ratio fell to 6.7 from 8.6. While the world changes on May 1st in terms of the action of the first time home buyer, inventory levels of new homes going into it has been trimmed to a good extent but unfortunately the market is still plagued by a still high rate of foreclosures of existing homes.