September 6th, 2011 1:36 PM by Lehel S.
This Week; there isn't much in the way of key economic data. The week is all focused on Thursday evening when the President will speak to a joint session of Congress to lay out his plans to create jobs. Yes, it will be interesting but it will be mostly political, chiding Republicans to get on board his plan what ever it might be. In the meantime the economy is continuing to slide; no new jobs created in August rocked the markets last Friday. Likely the President will announce a lot of construction jobs such as bridges, airports and roads since they can be up and running quickly. Unlikely he will ever use the phrase "shovel-ready" again since his last attempt to increase jobs that were "shovel-ready" turned out to be a dud. It will require more spending, how will that go down with conservatives? Not well. Consensus among pundits is that his speech will be the foundation of his agenda for the economic recovery that will set the tone for next year.
Over the weekend foreign equity markets were hit hard. The 10-yr yield to a record low 1.911%. A flight to safety in response to Monday's sell off in equity markets around the world was reversed after the Swiss National Bank took drastic measures, announcing a peg of 1.20 euro per 1 franc (trading at 1.10 pre-announcement). At 8:30 this morning the 10 yr traded at 1.94%. Mortgage markets will likely drag along but won't move as much as rates fall as treasuries. At 8:30 the 10 yr note +14/32, mortgage prices -3/32.
The increasing view is that the Fed will do another easing by increasing its balance sheet with longer dated maturities while selling shorted dated notes. Mostly talk so far but we hear it coming from many different sources. Markets are the measuring stick and traders are anticipating the move. In the last couple of days the 10 yr note and 30 yr bond yields declined while the middle of the curve (5 yr note) has remained generally unchanged and the 2 yr note actually increased in rate. If that will be the Fed's easing plan, will it get businesses to spend and hire, will it jump start home buying, will it support job growth? There will be no place to go to earn any return on cash; the stock market isn't going to improve if employment remains stagnant, can't park money in the bond markets, the 30 yr bond has fallen 37 bp in the last two weeks---maybe some corporates, but not much; gold will likely continue higher as investors scramble for any kind of return. Commodities may increase but again without economic growth there is a limit on how much higher prices will go. The Federal Reserve is essentially out of bullets; from now on it is up to fiscal policies (Congress and the Administration).
At 9:30 the DJIA opened down 210 points, the 10 yr note +16/32 at 1.94% -6 bp; mortgage prices +1/32 (.03 p). By 9:35 the DJIA down 270, NASDAQ -58 and the S&P -28.
At 10:00 the August ISM services sector index, expected at 51.0 frm 52.7 in July, was at 53.3. The components; new orders 52.8 frm 51.7, employment 51.6 frm 52.5 and prices pd at 64.2 frm 56.6. Not much reaction to the slightly better data on services. Although better the services sector is still generally flat based on the data. Prices pd did increase, the first increase in many weeks. No recession based on the data but no real growth either.
This Week's Economic Calendar:
7:00 am weekly MBA mortgage applications
2:00 pm Fed Beige Book
8:30 am weekly jobless claims (-9K to 400K; con't clams 3.70 mil from 3.735 mil last week)
July US trade balance (-$51.5B)
3:00 pm July consumer credit (+$5.0B)
8:00 pm President Obama's speech
10:00 am July wholesale inventories (+0.7%)