June 14th, 2011 8:59 AM by Lehel S.
The stock markets in Europe stronger, here this morning in pre-market trading the DJIA up 100 points at 8:45. The 10 yr note -21/32 at 3.06% and mortgage prices -13/32 (.41 bp) at 9:00. The markets were ripe for a change technically; the bond market overbought while the stock market oversold; always difficult to call it but we have mentioned it for the last few days. The equity market rally started in China when its industrial production was stronger than most were expecting.
In Europe markets were once again encouraged that the Greece debt problem may about to be completed; it has been back and forth for months with a plan, then no plan, and back again. Nevertheless today is a back on again. Meeting in Brussels in an emergency session before their monthly gathering next week, euro-area finance ministers are seeking to narrow differences on how investors share the cost of easing Europe’s biggest debt burden. They aim to wrap up a new financing plan at a government leaders’ summit on June 23-24, a year after Greece received its first bailout package.
At 8:30 May retail sales were expected down 0.5%, as reported down just 0.2%; excluding auto sales up 0.3% with markets looking for +0.2%. A slightly better report but in an oversold market anything better than forecasts are welcome news. Also at 8:30 May producer price index increased 0.2% overall and ex food and energy also +0.2%, that the inflation readings were moderate added to the early strength. Yr/yr PPI +7.3%, ex food and energy +2.1% in line with what economists were hoping for.
At 9:30 the DJIA opened +90, the 10 yr note -21/32 at 3.06% and mortgage prices -13/32 (.41 bp).
At 10:00 April business inventories, expected up 0.9%, were up 0.8%. Final sales up 0.1% with an inventory to sales ratio at 1.26 months from 1.25 months in March. No reaction to the report, it isn't a main liner and the stock market already up triple digits with the 10 yr note yield up 8 bp.
At 2:30 this afternoon Bernanke and a number of other economists will talk about the US debt ceiling and overall budget deficit. Traders will focus on the conference for clues from Bernanke about any additional easing moves after QE 2 ends at the end of this month. After the Fed ends its $600B buying of treasuries that began last November some question what will happen with interest rates. The Fed is on record it will keep interest rates low; the economy is weak, unemployment high and housing in the ditch. Although the equity markets are rallying this morning there isn't any significant change in the outlook yet. As noted, the rally so far is simply a reflex from oversold conditions and overbought situation in the bond and mortgage markets. The financial markets are likely to consolidate recent movements but until there is reason to believe that the economy is actually gaining traction the outlook hasn't changed for stocks or bonds. There are key data points remaining this week and an FOMC meeting next week; we'll see how the data comes out before making any significant changes in our forecasts.