- March ADP U.S. employment expected to be slightly below trend
- MBA mortgage apps will be watched for any improvement in mortgage activity going into spring
- 7-year T-note auction to yield near 1.59%
- U.S. crude oil inventories expected to rise to another new record high in today’s EIA report
March ADP U.S. employment expected to be slightly below trend — The market is expecting today’s March U.S. ADP employment report to show an increase of +195,000, which would be mildly below Feb’s +214,000 and the trend 12-month moving average of +206,000. The ADP report showed some weakness last autumn (Sep +171,000, Oct +178,000) but then showed a strong monthly average of +222,000 in the next four months (Nov-Feb).
On the labor front, the market is mainly looking ahead to Friday’s March unemployment report. The market is expecting Friday’s March payroll report to show an increase of +210,000, down from Feb’s strong +242,000 and mildly below the trend 12-month average of +223,000. Payrolls were a bit weak at +172,000 in January but the Jan-Feb average was much better at +207,000 after taking into account Feb’s strong increase of +242,000.
The markets were pleased that job growth held up during January and February when the U.S. stock market was in a full-blown downside correction and there was significant turmoil in China. However, the question is whether job growth will continue to hold up at strong levels going into spring. U.S. corporations are currently in a profit recession and they may be looking to curb their hiring and their labor costs, particularly due to poor labor productivity at present.
Meanwhile, the market is expecting Friday’s March unemployment rate to be unchanged from Feb’s 8-year low of 4.9%. The current U.S. unemployment rate of 4.9% is near the Fed’s idea of full employment considering that the FOMC is forecasting that the unemployment rate will drop by only another -0.4 points to 4.5% over the next three years and is forecasting the longer-run unemployment rate at 4.8%.
MBA mortgage apps will be watched for any improvement in mortgage activity going into spring — The markets will be watching today’s MBA mortgage applications report to get a better idea of how the housing sector will fare going into the spring selling season. The MBA refinancing sub-index has fallen for the last five consecutive weeks by a total of -25.9% mainly because of the mild rise in mortgage rates seen in early March. The 30-year mortgage rate fell sharply during Jan/Feb and posted a 14-month low of 3.62% but has since bounced back up to 3.71%.
Meanwhile, the MBA purchase sub-index showed some volatility in Jan-Feb but in March has so far been moving sideways at a level that indicates continued relatively strong interest in obtaining a mortgage for buying a home. Feb existing home sales fell by -7.1% to a 3-month low of 5.08 million units, but home buying in general remains relatively strong.
7-year T-note auction to yield near 1.59% — The Treasury today will sell $28 billion of 7-year T-notes, concluding this week’s $88 billion T-note package. Today’s 7-year T-note issue was trading at 1.59% in when-issued trading late yesterday afternoon. That translates to an inflation-adjusted yield of just 0.06% against the current 7-year breakeven inflation expectations rate of 1.53%.
The 12-auction averages for the 7-year are as follows: 2.25 bid cover ratio, $17 million in non-competitive bids to mostly retail investors, 4.2 bp tail to the median yield, 13.5 bp tail to the low yield, and 49% taken at the high yield. The 7-year is slightly below average in popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of 55.5% of the last twelve 7-year T-note auctions, slightly below the average of 55.7% for all recent Treasury coupon auctions.
U.S. crude oil inventories expected to rise to another new record high in today’s EIA report — The market consensus for today’s weekly EIA report is for a +3.0 million bbl rise in U.S. crude oil inventories, a -2.5 million bbl decline in gasoline inventories, a -300,000 bbl decline in distillate inventories, and a +0.2 point increase in the refinery utilization rate to 88.6%.
There has been no let-up in the surge in U.S. oil inventories despite declining U.S. oil production. U.S. oil inventories last week rose by +1.8% to post a new record high of 532.535 million bbls, which is +37.0% above the 5-year seasonal average. Oil inventories at Cushing, the hub where WTI crude oil futures are priced, posted a record high of 67.491 million bbl two weeks ago, but then fell by -1.9% last week. U.S. oil inventories based on seasonal patterns are likely to continue rising for at least another month due low demand from U.S. refineries, some of which are shut down for maintenance and/or the switch-over to producing summer fuels. Meanwhile, product inventories are also bulging, which is bearish for gasoline and heating oil prices. U.S. gasoline inventories are a hefty +9.6% above the 5-year seasonal average and distillates are in a glut at +26.2% above average.
Meanwhile, U.S. oil production since mid-January has been falling due to the renewed plunge in oil prices in Jan-Feb, which caused more oil companies to give up hope and close down more oil rigs. Yet production on a year-to-date basis has so far fallen by only -1.8% even though another 166 rigs (-31%) have been shut down so far this year. The grand total decline in oil production so far is only -6.0% from the 43-year high of 9.610 million bpd posted in June 2015.
