Recap 1-26-12

Main Items:

• US Capital Goods Orders, Non-defense Ex-air increased 2.9% in Dec vs 1.0% exp and -1.2% prev. DGO increased 3.0% vs 2.0% exp and 3.8% prev
• Initial Jobless Claims increased to 377k last week vs 370k exp and 352k prev
• Chicago Fed National Activity Index improved to 0.17 in Dec vs -0.12 exp and -0.37 prev
• Dow Jones headlines that private lenders have agreed to accept lower interest rates on new Greek debt. The Greek newspaper Ethnos is reporting a new offer with an interest rate of 3.75%.

Overseas:

• German GfK Consumer Confidence improved to 5.9 for Feb vs 5.6 exp and prev
• Italian Hourly Wages rose 1.4% Yoy in through Dec vs 1.5% prev.
• Swedish NIER Survey declined to 91.4 in Jan vs 93 exp and 92.9 prev
• Swedish UE increased to 7.1% in Dec vs 7.0% exp and 6.7% prev

Commentary:

Market expectations for another round of QE appear to have increased after yesterday’s FOMC meeting. Citi thinks that it was equivalent to a 50bp cut and that 5y yields could rally another 20bps from yesterday’s close. GS notes that Bernanke appears to believe that if the FOMC forecasts are correct, there will be another round of QE.
The big question is, how long will the US treasury market stay decoupled from economic data? One possibility is that we have a replay of the 2003 scenario whereby the Fed continued easing on disinflation concerns despite decent data. Ultimately, this drove a drop lower in yields before they bounced back.

Note that as of today, US Conference Board’s Leading Index underwent its first comprehensive benchmark revisions since 1996. 3 of the 10 components are replaced & 1 adjusted

• Real money supply (M2) has been replaced with a newly created leading credit index starting in 1990 (M2 is still used prior to 1990). This new index is a creation of the Conference Board and is designed to use financial and credit market indicators to target business cycle turning points.
• The ISM supplier delivery index has been replaced with the ISM new orders index for the history of the series.
• The consumer expectations index is now an equally weighted average of the consumer expectation surveys conducted by both the University of Michigan and the Conference Board, whereas previously the index used only the University of Michigan’s survey (still the sole index prior to 1978).
• New orders for nondefense capital goods now exclude aircraft for the history of the series.