May 16th, 2011 12:15 PM by Lehel S.
Interest rate markets started a little soft but generally hanging around unchanged with the stock market looking like a softer open at 9:30. At 9:00 the DJIA traded -36 after declining 100.25 on Friday. At 8:30 the May NY Empire State manufacturing index, it was expected at 18.0 frm 21.7, as reported it fell to 11.88. The prices pd component increased to 69.89 frm 57.69, some concern on the increase as markets continue to watch anything that might suggest inflation is increasing. The new orders component was 17.19 frm 22.34, the employment index did increase, to 24.73 frm 23.08. Overall a weaker than expected report but didn't generate any noticeable reaction in the bond and mortgage markets. (any index reading over zero is considered expansion)
At 9:30 the DJIA opened -39, the 10 yr note unchanged and mortgage prices -1/32 (.03 bp).
At 10:00 the May NAHB housing market index, expected unchanged at 16, as reported it was unchanged. 16 has been the weak outlook for 6 out of the past 7 months with 15 being what is considered the pivotal level.
By now most are aware of the arrest of International Monetary Fund chief Dominique Strauss-Kahn in NY on charges of rape, criminal confinement, and a criminal sex act. Yet another scandal, this time the head of the IMF and a potential candidate for the Presidency of France. The arrest comes when the IMF is scheduled to begin talks about Greece's debt problems. The meeting will take place as officials discuss increasing a 110 billion-euro ($155B) loan package to Greece amid concerns the country may be unable to finance its debt next year. While a juicy story, and likely to lead to his resignation, the incident hasn't caused much reaction in any markets here or in Europe. Scandals these days, from insider trading, to inappropriate behaviors are unfortunately becoming commonplace; sad but true.
This Week's Economic Calendar:
8:30 am May NY Empire St manufacturing index (as reported 11.88 frm 21.70)
10:00 am NAHB May housing mkt index ( expected unchanged at 16, as reported
8:30 am April housing starts and permits (starts +2.8%, permits -0.7%)
9:15 am April Industrial production (+0.5%)
April capacity utilization (77.7% frm 77.4% in Mar)
7:00 am weekly mortgage applications
2:00 pm FOMC minutes 4/27 meeting
8:30 am weekly jobless claims (-16K to 420K; con't claims 3.713 mil frm 3.756 mil)
10:00 am April existing home sales (+2.3% to 5.22 mil annualized)
May Philadelphia Fed business index (17.5 frm 18.5 in Apr)
Apr leading economic indicators (0.0% frm 0.4% in Mar)
Crude oil appears to be settling down in a range of $3.00; not running higher but not falling either. Gasoline prices likely won't decline much now until after Memorial Day as demand should stay high and oil companies take advantage as they do every late May. With crude prices moderating, as long as it continues the outlook for consumer spending will improve; but in our opinion unless gasoline prices fall $0.75/gal consumers will not increase their spending much.
The 10 yr note, the segment of the curve that directs mortgage markets, has for 7 days tested what is increasingly become a key level at 3.14% and each day it has failed to break through. On the other side, there is no appreciable selling. The 10 yr and mortgage rates have settled in a 4/32 range (.12 bp) for over a week now. Nice to have stable markets; however it won't last much longer. After testing and being rejected for 7 trading sessions, if the 10 breaks and closes below 3.14% we would expect a move down to 3.00% taking 30 yr mortgage rates down 10 to 12 basis points in rate. The other outlook; if the 10 closes above 3.20% we can expect additional increase in rates.