June 21st, 2011 6:32 AM by Lehel S.
There are no economic reports today; this week economic releases are scarce with May existing and new home sales, durable goods orders and weekly jobless claims about all there is. The headlines this week are the FOMC meeting that begins tomorrow then the policy statement on Wednesday at its conclusion and Bernanke's press conference Wed afternoon; and the ongoing Greece debt problems.
As the economic outlook continues to weaken crude oil is falling; crude this morning at 8:00 am down another $1.40 to $91.60 area, by 10:00 back to unchanged. OPEC refused to increase output at its recent meeting in Vienna, however the Saudis are indicating they will increase their output. With the economy slowing demand is seen as weakening along with it; gasoline prices in most areas have fallen $0.65 to $0.70 a gallon in the last two weeks. Markets will take the decline in energy prices as a stimulus for economic growth as consumers pay less at the pump and spend more on discretionary purchases, at least that is the optimistic view held by anyone making a living selling investments (stocks).
At 6:00 am this morning the 10 yr note traded +7/32, at 8:00 +14/32 at 2.89%. Nothing new from Europe over the weekend on Greece sending equity markets lower and treasury and mortgage prices higher. Not sure what markets were thinking about what might happen with Greece since the IMF, EU and the ECB have set the conditions for additional money for Greece. Greece must adopt huge spending cuts ($28B) in its Parliament to meet conditions for more money and then it won't be done until July. As long as the Greece government is unable to pass the needed spending cuts Greece will be a dominate factor in the bond market. Not only Greece; in Spain over the weekend there were huge protests across the country against austerity moves by its government are being considered. Spain is Europe's 4th largest economy and so far has not had to seek help from the ECB or EU but things are increasingly more shaky. Then there is Italy, Portugal and Ireland that becoming more a concern. In short; in Europe there are only two economies holding the whole EU together now, Germany and France.
Another forecast of weaker growth in the US; the International Monetary Fund cut its forecast for U.S. growth in 2011 for the second time in two months on June 17, bolstering the appeal of fixed-income assets.
Some new data from the Fed; deposits at U.S. banks exceeded loans, reaching a record $1.45T last month. back in 2008 loans exceeded deposits. In the 10 yrs before credit markets seized up in 2008,U.S. deposits exceeded loans by an average of about $100B, Fed data show. As deposits exceed loan demand banks will buy more treasuries thus keeping interest rate low and likely to decline more.
The stock market opening weaker this morning aiding improvement in the bond market. Crude falling again and likely will decline more to test the very critical $90.00 level. No data and the FOMC meeting mixed with the growing mess in Europe as the ECB, IMF and EU continue to fiddle as Europecomes closer to the edge. No one knows for sure what will happen if the Greek government and its people just say the hell with it. 40% of Greeks work for the government in some way or the other, how much pain will they endure? The longer the ECB delays in making its decisions the worse the financial structure becomes and the more attractive US treasuries become as a safe haven.
This Week's Economic Calendar:
10:00 am May existing home sales (-5.8% to 4.75 mil units annualized)
7:00 am MBA mortgage applications
10:00 am FHFA Apr housing price index (N/A; March +0.3%)
12:30 FOMC policy statement
2:15 pm Bernanke press conference
8:15 am weekly jobless claims (+1K to 415K' con't claims 3.68 mil frm 3.675 mil
10:00 am May new home sales (-5.6% to 305K units annualized)
8:30 am Q1 final GDP (+1.8% unch frm prelim last month)
May durable goods orders (+1.0%, ex transportation orders +0.6%)
The bond and mortgage markets held much better levels early this morning than at 9:30,nevertheless there is little reason to worry rates will increase in any significant way. That said, near term most of the news has been discounted in present levels. The stock market has little to look forward to as more and more the outlook looks soft for the economy. Wednesday the FOMC policy statement will likely be ore of the same the Fed has been saying for months (economic growth but sluggish, higher energy prices a drag, unemployment getting better but too slow, and the housing sector still weakening)----Bernanke will likely continue to use "transitory" to define high commodity prices.