July 22nd, 2011 7:02 PM by Lehel S.
Mortgage prices were under pressure in early trading. Equity futures were stronger prior to the opening as the problems in Europe seem to have moved to a more promising solution. At the opening of the stock markets the DJIA was higher but not as high as the futures were indicating earlier in the morning. Mortgage prices were down by 6/32, unchanged from earlier in the morning. The 10-year note yield is pushing the 3.0% mark, 2.99% at the stock market opening.
The unfolding talks in Europe over Greek debt have brought us a pending compromise whereby the ECB will allow Greece to temporarily slip into default as part of a broader agreement. The proposal involves a buyback of discounted Greek bonds to help Greece deal with the crippling effects of the current terms of their rescue. This agreement that is supported by Germany and France and the Dutch, is touted as the most promising way to get private investors involved in the second rescue package. The implications for a rescue package for Portugal, Ireland, and then Italy and Spain are perhaps looking better as the compromise over Greek debt comes to a head.
Economic news in Europe was weaker as the French and German equivalent to our PMI was reported close to contraction. In addition, China’s factory sector reported a contraction for the first time in a year. These are more signs that the global economy is slowing and that it will filter over to our economy as we have seen of late.
At 8:30am weekly jobless claims were reported up 10K to 418K for the week ending 7/16.Continuing claims fell to 3.698M from 3.748M for the week ending 7/09. The 4-week moving average fell by 2,750 to 421,250 claims. There was no market reaction to the rise in claims.
At 10:00am June leading indicators came in at +0.3% versus +0.8% in May meeting expectations. Equities rose and mortgage prices fell about 1/32.
The Federal Housing Finance Agency reported at 10:00am that home prices for May were +0.4% versus +0.8% in April.
Lastly at 10:00am The Philadelphia Fed Index for July came in at 3.2 on expectations of about a 2.5 read from June’s negative read of -7.7. Equity markets rose on the news and mortgage prices gave up about 1/32.
The big media event of the day centers around testimony on the Hill regarding the Dodd-Frank Bill 1-year after taking effect and the deal or compromise that Congress is proposing over the debt-ceiling deficit-reduction debate.
Gold and oil prices are higher in early trade as is the euro. The euro gained strength as a compromise over Greece looks like it may be reached. The yen is essentially unchanged versus the dollar.
The only item left on the calendar for the week is the 1:00pm 10-year TIPS auction. The rest of the day will be dominated by European news and bonds and mortgages following equities.