June 10th, 2011 4:52 PM by Lehel S.
Treasuries and mortgages doing better again this morning, the stock indexes in pre-market trade were better. Weekly jobless claims at 8:30 were a little softer than expected but generally in line; +1K to 427K, last week's claims were revised from 422K to 426K. Continuing claims were down 71K to 3.676 mil. Treasuries were better prior to the claims and increased slightly after the release; by 9:00 however the 10 yr note backed off to unchanged and mortgage prices that were +3/32 at 8:00 were down 4/32 (.12 bp) on the session.
Also at 8:30 the April US trade deficit was expected at -$48.8B, good news, the monthly deficit was -$43.69B. Good news but does it imply the US economy is weaker than thought with less imports? More likely the decline is a result of Japan's problems with the earthquakes and tsunami that hindered auto part exports. Imports dropped 0.4 percent to $219.2 billion from $220.2 billion in March. Demand for foreign-made automobiles and parts dropped by $2.82 billion to $19.1 billion, and crude oil imports fell by $2.42 billion as prices rose.
The ECB met and held interest rates unchanged; markets were expecting the bank to leave rates unchanged, no direct reaction of consequence.
The White House is said to be considering lowering or eliminating payroll taxes for businesses hiring new employees. It is in the planning stage, if actually proposed it will likely get bi-partisan support as Republicans have been pushing for more help for businesses.
Will there be another easing move from the Fed? As the economic outlook weakens the prospect is more in play in the minds of analysts. Not real sure what another Fed easing move will accomplish but with Congress and the Administration seeming to be paralyzed the Fed is seen as the only game in town. QE 2 didn't help the economy as is obvious now, lower interest rates won't help much. The problems in the economy are structural; consumers unwilling to spend much, gasoline prices and food prices continuing to increase, the housing sector being left out to dry; another easing move by the Fed won't help cure those problems.
OPEC refused to increase output in their meeting yesterday; this morning Congress and the Administration are making comments that the US should open the strategic oil reserve to keep crude from increasing. The reserve has 727 million barrels in it; it would take a week or so once a decision to release oil to reach markets. Crude oil at 9:00 this morning up $1.00 at $101.74.
The last of this week's auctions at 1:00 this afternoon, $13B of 30 yr bonds will be sold. Yesterday's 10 yr auction met with good demand, today's auction should also go well.
While the bond and mortgage markets remain strong with the prospect for lower rates still in tact; the markets presently are somewhat overbought in the near term, all momentum oscillators we use are in overbought levels.