June 10th, 2011 4:53 PM by Lehel S.
The bond and mortgage markets started a little better this morning after a bout of selling yesterday as the equity market bounced off very oversold technicals; the bond market equally extended----overbought as we note two days ago. This morning in early activity the stock indexes were weaker. Yesterday's minor price declines and the improvement in equity markets were not n any way fed by a change in the over-riding fundaments of an economy weakening, energy prices and commodity prices increasing.
This morning, in a week with hardly any economic data, May import prices were expected down 0.7% but increased 0.2%; export prices were +0.2% against forecasts of +0.3%. The increase in import prices bothered traders a little but there is no reason to fret over inflation since markets refuse to look at food and energy prices as inflationary regardless of how much they increase. Then there is Bernanke, he continues to use the word 'transitory' to define the increases in oil and food prices; in his vernacular 'transitory' could easily mean years.
Yesterday grain prices climbed higher (again) on news that US corn crops this year may leave no carry-over at the end of the year. Corn supplies here and globally are razor thin as is cotton, wheat, soybeans and many other raw material commodities. Meat, chicken, fish---all these will see substantial price increases through the rest of the year. Consumer spending will continue to be subjugated to basic needs like eating and putting fuel in cars. In the meantime Bernanke still thinks there is no reason to sweat it because all this is 'transitory'.
Our readers know what we believe; that the US economy is stagnating as consumers cannot be encouraged into spending. In the meantime there has been NOTHING out of Washington of any substance to create jobs; the President moves around the country to auto plants and other points of opportunity talking jobs, but no jobs are occurring. Boeing wants to open a billion dollar plant in S. Carolina that would add thousands of jobs to build their new plane; well, not so fast; the National Labor Relations Board won't let the already built plant open because the Administration says being a right to work state will hurt workers in Washington ability to negotiate union contracts with workers in that state.
Crude oil today is lower along with early trade in the stock market. Gold also lower. The DJIA opened -53 at 9:30, the 10 yr note +6/32 at 2.98% and mortgage prices +5/32 (.15 bp) frm yesterday's close.
This afternoon Treasury will report the May budget data; the monthly deficit is expected at -$140B. This week didn't provide any real measurements on the economy, next week there will be a lot to analyze. Inflation gauges, PPI and CPI, May retail sales (expected down 0.4%), three regional Fed business reports for May and data on industrial production and factory use as well as weekly jobless claims. The bond market will go into the week technically overbought near term, however that won't stop more bond buying if the data continues to confirm the economy is stalling.