06/13/2008
April retail sales, expected to have declined, did; down 0.2%. However, ex auto sales retail was expected to be up 0.2% but jumped +0.5%. Prior to the 8:30 report the 10 yr note traded up 4/32, the initial reaction to better retail sent the note down 10/32 to -6/32 at 3.82%. This data will help lessen concerns over slowing consumption in the weeks ahead. The data showed slowing purchases at gas stations, even with gas prices rising just 0.4% after a Mar bump of 1.6%. Also at 8:30 April import prices jumped 1.8% with yr/yr at +15.4%, mostly due to the increases in oil prices. Export prices were up a mere 0.3%. Mortgage prices were unchanged prior to 8:30 but the knee jerk reaction pulled prices down 9/32 on the day. In the equity markets, prior to retail sales the indexes were weaker, on the reaction the key indexes recovered going into the 9:30 open.
March business inventories were reported at 10:00, expected to +0.4%, inventories were up 0.1%. Sales were reported up 1.0% with the inventory to sales ratio at 1.27 months, down from 1.28 months in Feb. The increase in sales will add the the upward revision to Q1 GDP.
The dollar got a boost on retail sales; the buck is hanging in a trading range these days as traders speculate whether or not the dollar deserves a rally. Crude unchanged, but gold is being slapped down hard (-$20.00)
LIBOR rates have been questioned in the past few weeks and now there is something being done to address concerns that banks that set LIBOR were understating the risks in sub prime loans last year. The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners faces its biggest shakeup in a decade as lawmakers question if banks are understating borrowing costs. The BBA, an unregulated London-based trade group, sets Libor by polling 16 banks each day on the rates they pay for loans in dollars, British pounds, euros and eight other currencies. LIBOR rates hit the spotlight in early April. While the BBA set the one-month dollar Libor rate at 2.72% on April 7, the Federal Reserve said banks paid 2.82% for secured loans later that day. Secured loans typically yield less than unsecured debt. Since then banks reporting of loan rates appear to be telling the truth, but prior to that it looks like they were lying through their teeth.
Federal Reserve Chairman Ben S. Bernanke said financial markets remain unsettled and the central bank will increase its auctions of cash to banks as needed. While markets have improved, they remain ``far from normal,'' Bernanke said today in the text of a speech to an Atlanta Fed conference at Sea Island, Georgia. ``We stand ready to increase the size of the auctions if further warranted by financial developments.'' Bernanke's comments contrast with those by Treasury Secretary Henry Paulson and Wall Street leaders including Vikram Pandit, chief executive officer of Citigroup Inc., who say the worst of the credit crisis is over. The Fed chief said it will take ``some time'' for financial firms to resolve the crisis by raising new capital and strengthening their management of risk. (Bloomberg) More likely Bernanke also believes the worst is over, but his willingness to add as much as needed is a salve for markets.
The bellwether 10 yr note, driver for the mortgage markets, continues to trade in a narrow range with the bias remaining bearish at the moment. That said, the 10 has staunchly resisted climbing above 3.92% (close) and equally refuses to crack 3.70% where we have strong resistance at 3.68%. This morning's retail sales took the wind out of the markets and sent yields up and prices lower, but well-contained in the range that we expect to continue. One huge headwind for lower rates is hitting bank accounts now; the stimulus checks are being sent out and all of the direct deposit checks have hit their target bank accounts. No doubt $125B of spendable cash will pump up the economy for a few months and with inflation fears always there, the prospects for substantially lower rates in the next month or two does not look good at the moment. That said, the seasonal factors are in our favor, with interest rates typically declining in the summer months.
Tuesday, May 13, 2008
Monday, May 12, 2008
Monday Market Conditions
06/12/2008
Treasuries and mortgages started with some price declines early this morning, but both are now seeing improvement. The stock market looks weak so far even though at 10:00 the DJIA is holding a slight improvement. More selling in stocks will support the bond market. The bellwether 10 yr note at 3.74% at 10;00 has a path to test resistance at 3.68%.
Last week there wasn't much in the way of economic data to focus on; this week the calendar has a lot of substance. CPI, housing starts and permits, regional economic data, consumer sentiment and the weekly claims for unemployment are out there and will be forces after a week with nothing to measure.
Some support coming for the bond market this month? Treasury will pay out $71B in maturing notes on May 15 to holders of maturing 3-, 5-, and 10-year Treasuries, and $17.7B in interest on outstanding notes and bonds. Last week it raised $21B from its quarterly auction of 10-year notes and 30-year bonds, bringing the net payment to $71B. All that money has to be re-invested and there reasons to expect most of it will come back into treasuries as there is still a lot of fear out there that more losses will follow from the sub prime mess, and as the economy declines corporate bonds may lose some of their luster even though they pay higher rates. Based on historical evidence May and through the Summer is one of the best periods of the year for the Treasury bond and note markets; ten-year note yields declined an average of 50 basis points between May and October in 16 of the last 20 years, that compares with a 32 basis-point increase from the end of January to May for most of the past two decades. Mortgage-backed securities should benefit as most are now Fannie and Freddie offerings as well as GNMA products, although Fannie and Freddie don't carry the outright guarantee of the US government, the reality these days is that they will be supported by Uncle Sam no matter what Congress or regulators espouse.
This week's Economic Calendar:
Tuesday:
8:30 April retail sales (unch overall; ex auto sales +0.2%)
8:30 April import and export prices
10:00 Mar business inventories (+0.5%)
Wednesday:
8:30 Apr Consumer Price Index (+0.3% overall, ex food and energy +0.2%)
10:30 EIA Crude oil inventories
Thursday:
8:30 weekly jobless claims (unch at 365K)
8:30 NY Empire State manufacturing index (+1.0 frm +0.6 in Apr)
9:15 Apr industrial production (-0.2%)
9:15 Apr Capacity Utilization (80.2% frm 80.3% in Mar)
10:00 Philadelphia Fed business index (-20.0 frm -24.9 in Apr)
Friday:
8:30 Apr housing starts (-0.8% to 940K)
Apr building permits (-1.4% to 912K)
10:00 U. of Michigan consumer sentiment index (63.0 frm 62.6)
Crude oil is trading lower this morning but is already coming well off the early lows as traders are buying any dips these days. The dollar is better against the yen, unchanged against the euro. Gold off $2.00.
Treasuries and mortgages started with some price declines early this morning, but both are now seeing improvement. The stock market looks weak so far even though at 10:00 the DJIA is holding a slight improvement. More selling in stocks will support the bond market. The bellwether 10 yr note at 3.74% at 10;00 has a path to test resistance at 3.68%.
Last week there wasn't much in the way of economic data to focus on; this week the calendar has a lot of substance. CPI, housing starts and permits, regional economic data, consumer sentiment and the weekly claims for unemployment are out there and will be forces after a week with nothing to measure.
Some support coming for the bond market this month? Treasury will pay out $71B in maturing notes on May 15 to holders of maturing 3-, 5-, and 10-year Treasuries, and $17.7B in interest on outstanding notes and bonds. Last week it raised $21B from its quarterly auction of 10-year notes and 30-year bonds, bringing the net payment to $71B. All that money has to be re-invested and there reasons to expect most of it will come back into treasuries as there is still a lot of fear out there that more losses will follow from the sub prime mess, and as the economy declines corporate bonds may lose some of their luster even though they pay higher rates. Based on historical evidence May and through the Summer is one of the best periods of the year for the Treasury bond and note markets; ten-year note yields declined an average of 50 basis points between May and October in 16 of the last 20 years, that compares with a 32 basis-point increase from the end of January to May for most of the past two decades. Mortgage-backed securities should benefit as most are now Fannie and Freddie offerings as well as GNMA products, although Fannie and Freddie don't carry the outright guarantee of the US government, the reality these days is that they will be supported by Uncle Sam no matter what Congress or regulators espouse.
This week's Economic Calendar:
Tuesday:
8:30 April retail sales (unch overall; ex auto sales +0.2%)
8:30 April import and export prices
10:00 Mar business inventories (+0.5%)
Wednesday:
8:30 Apr Consumer Price Index (+0.3% overall, ex food and energy +0.2%)
10:30 EIA Crude oil inventories
Thursday:
8:30 weekly jobless claims (unch at 365K)
8:30 NY Empire State manufacturing index (+1.0 frm +0.6 in Apr)
9:15 Apr industrial production (-0.2%)
9:15 Apr Capacity Utilization (80.2% frm 80.3% in Mar)
10:00 Philadelphia Fed business index (-20.0 frm -24.9 in Apr)
Friday:
8:30 Apr housing starts (-0.8% to 940K)
Apr building permits (-1.4% to 912K)
10:00 U. of Michigan consumer sentiment index (63.0 frm 62.6)
Crude oil is trading lower this morning but is already coming well off the early lows as traders are buying any dips these days. The dollar is better against the yen, unchanged against the euro. Gold off $2.00.
Tuesday, May 6, 2008
Tuesday Market Conditions
05/06/2008
The bond and mortgage markets started better this morning on momentary safe haven moves as Europe's stock markets were soft and the US stock market opened lower. UBS reported a loss of $17.3B in the first-quarter at its investment-banking unit, and plans to cut 5,500 jobs and said clients withdrew a net $12.2B from its asset- and wealth-management divisions. As losses continue to hit it adds trade into treasuries but we seriously argue that it is only hot money; leaving the potential of unstable moves that can be quickly reversed in the rate markets if equities firm through the day.
The 10 yr note and mortgage rates are stuck in a narrow 18 basis point range for three weeks now, building a platform for another quick move when the range finally cracks. There is key technical support for the 10 yr note at 3.92% as we have been mentioning for three weeks; however the closest the note has gotten is 3.89%. With no economic data today and no Fed speakers to think about, the remainder of the day will be based on the equity markets perform. The market is set up for traders as volume is thin and most investors are standing down from playing the trade game. There is a hurdle out there; tomorrow Treasury will sell $15B of new 10 yr notes at its quarterly refunding, not likely that the 10 yr can rally much today with supply pressures; and that will keep a lid on how much mortgage prices can improve.
More bad news for the mortgage and housing industry; just what we don't need. Fannie Mae reported a wider loss than analysts estimated, cut its dividend and said it will raise $6B in capital as the worst housing slump since the Great Depression deepens. Its stock tumbled as much as 12% in early trading; and said its credit-market losses will be worse next year. The first-quarter net loss was $2.19B, or $2.57 a share, compared with a loss of 64 cents a share anticipated by analysts. The company, which sold $7B of preferred stock in December, may need as much as $15B to cope with the delinquencies and foreclosures.
Crude oil is up again, now over $121.00; Goldman Sachs is saying today crude could see a mega spike to $150.00 to $200.00/barrel within six to twenty four months. If that is correct the US economy is headed for a recession that will pale any past recession. $200.00 oil is $6.00+/gallon for gas. While we believe oil is going higher, to expect that kind of increase is hard to fathom, let alone anticipate the consequences. No wonder the stock market is trading lower this morning. There is no way the US economy, consumers or businesses can stand that kind of increase.
The dollar isn't adding to its gains last week as the bearish outlook remains firm in the forex trading world. Gold is also back on the climb after falling $150.00 from its highs, it is up today and has been increasing for the past three sessions.
The bond and mortgage markets started better this morning on momentary safe haven moves as Europe's stock markets were soft and the US stock market opened lower. UBS reported a loss of $17.3B in the first-quarter at its investment-banking unit, and plans to cut 5,500 jobs and said clients withdrew a net $12.2B from its asset- and wealth-management divisions. As losses continue to hit it adds trade into treasuries but we seriously argue that it is only hot money; leaving the potential of unstable moves that can be quickly reversed in the rate markets if equities firm through the day.
The 10 yr note and mortgage rates are stuck in a narrow 18 basis point range for three weeks now, building a platform for another quick move when the range finally cracks. There is key technical support for the 10 yr note at 3.92% as we have been mentioning for three weeks; however the closest the note has gotten is 3.89%. With no economic data today and no Fed speakers to think about, the remainder of the day will be based on the equity markets perform. The market is set up for traders as volume is thin and most investors are standing down from playing the trade game. There is a hurdle out there; tomorrow Treasury will sell $15B of new 10 yr notes at its quarterly refunding, not likely that the 10 yr can rally much today with supply pressures; and that will keep a lid on how much mortgage prices can improve.
More bad news for the mortgage and housing industry; just what we don't need. Fannie Mae reported a wider loss than analysts estimated, cut its dividend and said it will raise $6B in capital as the worst housing slump since the Great Depression deepens. Its stock tumbled as much as 12% in early trading; and said its credit-market losses will be worse next year. The first-quarter net loss was $2.19B, or $2.57 a share, compared with a loss of 64 cents a share anticipated by analysts. The company, which sold $7B of preferred stock in December, may need as much as $15B to cope with the delinquencies and foreclosures.
Crude oil is up again, now over $121.00; Goldman Sachs is saying today crude could see a mega spike to $150.00 to $200.00/barrel within six to twenty four months. If that is correct the US economy is headed for a recession that will pale any past recession. $200.00 oil is $6.00+/gallon for gas. While we believe oil is going higher, to expect that kind of increase is hard to fathom, let alone anticipate the consequences. No wonder the stock market is trading lower this morning. There is no way the US economy, consumers or businesses can stand that kind of increase.
The dollar isn't adding to its gains last week as the bearish outlook remains firm in the forex trading world. Gold is also back on the climb after falling $150.00 from its highs, it is up today and has been increasing for the past three sessions.
Monday, May 5, 2008
Wanted to share
5/5/2008
Here is a great weekly newsletter you can sign up for--it is an overall view of the economy from a great perspective.
I encourage all of you to sign up for this.
http://www.frontlinethoughts.com/learnmore
Jeremy
Here is a great weekly newsletter you can sign up for--it is an overall view of the economy from a great perspective.
I encourage all of you to sign up for this.
http://www.frontlinethoughts.com/learnmore
Jeremy
Monday Market Conditions
05/05/2008
Some rebound in the bond and mortgage markets this morning after selling Friday drove yields to levels that were very close to drop dead support; but by 10:00 all the early gains have been erased . The 10 yr yield hit 3.88% on Friday, settled at 3.86& and closed in one 3.92% that we still believe will be tested. Early volume in bond and mortgage trading this morning was paper thin as investors and traders were left with very little news to work from. Stock index trading prior to the 9:30 open added a little support to rate markets as the indexes were pointing to a lower open.
Markets in Japan and England are closed for holiday today, adding the thin trading activity. The only data this morning came at 10:00 with the ISM services sector report. The overall index was expected to be about unchanged at 49.5 frm 49.6 originally reported in March. The overall index jumped to 52.0 and March was revised to 50.2; new orders component at 50.0 from 50.2, price index at 72.1 frm 70.8, and employment index at 50.8 frm 46.9. Any index read over 50 indicates expansion. Treasury and mortgage prices resumed selling on the report.
This week's Economic Calendar is thin:
Wednesday:
8:30 Q1 productivity (+1.2%)
10:00 March pending home sales
1:00 $15B 10 yr treasury note auction
3:00 Mar consumer credit (+$6.3B)
Thursday:
8:30 weekly jobless claims (-12K)
10:00 Mar wholesale inventories (+0.4%)
1:00 $6B 30 yr bond auction
Friday:
8:30 Mar trade balance (-$61.3B)
The BofA/Countrywide deal is on shaky ground. Last week talk surfaced that BofA would not agree to guarantee all of Countrywide's debt, sending a clear message that the original deal will be re-negotiated. Talk this morning is that BofA, which originally offered $7.00/share may now only want to pay $2.00. Some analysts are suggesting BofA should just walk away from the deal altogether.
Back in the news: Former Federal Reserve Chairman Alan Greenspan said the U.S. has slipped into an "awfully pale recession'' and may continue to languish for the rest of the year. "We are clearly receding,'' with economic growth now at about zero percent, he said in an interview with Bloomberg News. Greenspan, who now consults for clients including Deutsche Bank AG, also said it was too soon to declare the end to the credit crisis stemming from the collapse in the subprime mortgage market. "Until there are stabilized prices of homes, and I think they have a good way to go down, you still have prospective losses'' for financial companies and investors. "It's too soon to tell'' if the worst of the credit crunch is over, he added.
Commodity prices are not going to decline as many have been recently espousing! Yes there has been speculation that has driven prices higher, and yes the dollar weakness has added to the increase of all commodity prices. However, demand for oil, grains and metals shows little signs of abating. Food shortages are are escalating and will continue as the formerly "under-developed countries expand economically. For food; the world is facing a serious shortage of ending stocks (stocks after harvest) and so far the US grain belt is well behind in planting this year. Crude oil is moving back to $120.00, trading now at $118.72 +$2.40; gold is up $13.00. The dollar is trading weaker this morning.
Some rebound in the bond and mortgage markets this morning after selling Friday drove yields to levels that were very close to drop dead support; but by 10:00 all the early gains have been erased . The 10 yr yield hit 3.88% on Friday, settled at 3.86& and closed in one 3.92% that we still believe will be tested. Early volume in bond and mortgage trading this morning was paper thin as investors and traders were left with very little news to work from. Stock index trading prior to the 9:30 open added a little support to rate markets as the indexes were pointing to a lower open.
Markets in Japan and England are closed for holiday today, adding the thin trading activity. The only data this morning came at 10:00 with the ISM services sector report. The overall index was expected to be about unchanged at 49.5 frm 49.6 originally reported in March. The overall index jumped to 52.0 and March was revised to 50.2; new orders component at 50.0 from 50.2, price index at 72.1 frm 70.8, and employment index at 50.8 frm 46.9. Any index read over 50 indicates expansion. Treasury and mortgage prices resumed selling on the report.
This week's Economic Calendar is thin:
Wednesday:
8:30 Q1 productivity (+1.2%)
10:00 March pending home sales
1:00 $15B 10 yr treasury note auction
3:00 Mar consumer credit (+$6.3B)
Thursday:
8:30 weekly jobless claims (-12K)
10:00 Mar wholesale inventories (+0.4%)
1:00 $6B 30 yr bond auction
Friday:
8:30 Mar trade balance (-$61.3B)
The BofA/Countrywide deal is on shaky ground. Last week talk surfaced that BofA would not agree to guarantee all of Countrywide's debt, sending a clear message that the original deal will be re-negotiated. Talk this morning is that BofA, which originally offered $7.00/share may now only want to pay $2.00. Some analysts are suggesting BofA should just walk away from the deal altogether.
Back in the news: Former Federal Reserve Chairman Alan Greenspan said the U.S. has slipped into an "awfully pale recession'' and may continue to languish for the rest of the year. "We are clearly receding,'' with economic growth now at about zero percent, he said in an interview with Bloomberg News. Greenspan, who now consults for clients including Deutsche Bank AG, also said it was too soon to declare the end to the credit crisis stemming from the collapse in the subprime mortgage market. "Until there are stabilized prices of homes, and I think they have a good way to go down, you still have prospective losses'' for financial companies and investors. "It's too soon to tell'' if the worst of the credit crunch is over, he added.
Commodity prices are not going to decline as many have been recently espousing! Yes there has been speculation that has driven prices higher, and yes the dollar weakness has added to the increase of all commodity prices. However, demand for oil, grains and metals shows little signs of abating. Food shortages are are escalating and will continue as the formerly "under-developed countries expand economically. For food; the world is facing a serious shortage of ending stocks (stocks after harvest) and so far the US grain belt is well behind in planting this year. Crude oil is moving back to $120.00, trading now at $118.72 +$2.40; gold is up $13.00. The dollar is trading weaker this morning.
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