July 26th, 2011 8:03 AM by Lehel S.
Interest rate markets started unchanged this morning after some weakness yesterday that mirrored the slight improvement last Friday. Markets still don't have any idea how the debt ceiling increase will be resolved, thus sitting quietly waiting. By 9:30 mortgage prices were better by 3/32 (.09 bp) frm yesterday's close. The DJIA opened -40, the 10 yr note +3/32 at 2.99% -1 bp.
At 9:00 the May Case/Shiller home price index was up 1.0% for 20 cities and -4.5% yr/yr, both as expected. No reaction to the report; in our view it is a lagging report and isn't a key data point on housing, just one more study but covers just 20 large markets. Home prices in 20 U.S. cities dropped in the year ended May by the most in 18 months, adding to evidence the housing market is struggling.
At 10:00 July consumer confidence index hit at 59.5 frm a revised 57.6 (revised from 58.5); the expectations index 75.4 frm 71.6 in June.
June new home sales down 1.0% against estimates of +0.4% to 312K units annualized. May sales revised to -0.6% frm -2.1%; based on sales there is a 6.3 month supply. The median sales price $235,200 up 7.2% yr/yr. There was no immediate reaction to the two data points. The DJIA still falling and the bond and mortgage markets improving from earlier levels.
The Pres. went on prime time TV last night pleading his plan and chiding Republicans; immediately after he spoke John Boehner fired back. That is about all we get these days; barbs flying and fear mongering from both sides; meanwhile there is still no deal. “We can’t allow the American people to become collateral damage to Washington’s political warfare,” Obama said. Moments later, Boehner responded that the president “wants a blank check” to continue government spending that is “sapping the drive of our people.” Posturing isn't helping and won't make a bit of difference as both sides now are locked in their own ideas. Markets are not falling apart as the Pres has implied; markets increasingly believe if August 2nd comes and goes the government will find a way to pay its bills. As for down grading US credit rating; that also hasn't generated any significant moves in the bond or equity markets. There is now an increasing floating balloon to lessen the idea of a default; that the US really doesn't need a debt ceiling at all; Moody's is saying it as is Warren Buffet. As this saga goes on---and on----markets and investors are increasingly bored with it; no increase in interest rates, no real decline in the equity markets based on debt fears.
At 1:00 Treasury will auction $35B of 2 yr notes, if the auction goes well it will be further evidence global investors are not fretting over the impasse in Washington and ignoring the Armageddon talk coming from the White House. If demand is weak, then we have something to worry about.