August 15th, 2011 7:16 AM by Lehel S.
Prior to 8:30 treasuries and mortgages were a little weaker in price. At 8:30 the first data point this week, the NY Fed Empire State manufacturing index was expected to have declined to -0.4, as reported it fell to -7.72 frm -3.76 in July (any read under zero is considered contraction). New orders component fell to -7.82 frm -5.45, employment at 3.26 frm 1.11, and prices at 28.26 frm 43.33. The report didn't generate much reaction but kept interest rates in check until the stock market opened at 9:30. At 9:00 the DJIA index traded +41.
At 9:30 the DJIA opened +110, the 10 yr note unchanged at 2.26% while mortgage prices at 9:30 were soft; down 4/32 (.12 bp) on 30 yr conventionals and -11/32 (.34 bp) on 30 FHAs.
At 10:00 the August housing market index from NAHB, expected unchanged at 15, as reported 15; single family home sales index at 16, up from 15 in July. Treasuries and mortgages at 10:00 were losing ground from levels at 9:30. Mtgs at 10:00 -8/32 (.25 bp), the 10 yr at 10:00 -5/32.
Last Thursday and Friday the stock indexes closed better, it has been rare that the indexes improved on two successive days. This morning the stock market has opened better, talk will focus on possible 3 days in a row. The outlook for the economy is likely more pessimistic than it should be but in this panicky environment not many are thinking clearly. The economic outlook isn't what it was two months ago with report after report on the economy weaker than estimates. Mix in the still shocking statement from the Fed last Tuesday that it would keep the Fed funds rate at current levels for two more years; the take away is that the Fed now believes the US and global economies will not improve much and unemployment will stay at recession high levels.
This Week should continue to see increased volatility in the financial markets as investors and traders sift through the ever changing economic outlook. Last week didn't have much in the way of key data points, this week we have a lot of economic food to digest. The bond and mortgage markets remain technically overbought but in this present environment of high volatility and moving to safety the bond market will likely continue to hold low rates, however not quite as low as it was last week. It all depends on the data this week. Expect to hear more about the possibility of another Fed easing (QE 3); whether or not the Fed goes back to purchasing treasuries or MBSs or anything else, it won't likely have any impact on improving the economy or job growth. This week expect another week of interday market volatility. The bond and mortgage markets will continue to move in tandem with stock indexes; better stock market lower prices in mortgages and treasuries.
This week's Economic Calendar:
8:30 August Empire State manufacturing index (as reported -7.72 frm -3.76 in July)
10:00 Aug NAHB housing mkt index (expected at 15, as reported
8:30 am July housing starts (-3.5%)
July building permits (-3.0%)
July export prices
July import prices
9:15 am July industrial production (+0.4%)
July capacity utilization (77.0% frm 76.7% in June)
7:00 am Weekly MBA mortgage applications
8:30 am July producer price index (0.0% frm -0.4% in June; ex food and energy +0.2%)
8:30 am weekly jobless claims (+5K to 400K; continues claims 3.698 mil frm 3.688 mil)
July consumer price index (+0.2%, ex food and energy +0.2%)
10:00 am July existing home sales (+2.0% at 4.87 mil)
August Philadelphia Fed business index (+1.0 frm +3.20 in July)
July leading economic indicators (+0.2%)
Japan’s economy shrank at an annualized 1.3% rate in the second quarter, compared with the median forecast for a 2.5% drop. Oil traded near its highest in a week as advancing U.S. equity futures and better-than-forecast economic data from Japan allayed concerns that the global recovery has faded. When is bad news good news? These days with markets increasingly worried about a double dip recessions any report that beats estimates is reason for a sigh of relief.
Yields are little changed across Europe as markets take a wait and see approach ahead of tomorrow's crisis management meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel. The little change is somewhat of a surprise as initial reports are suggesting that both France and Germany have ruled out a common Euro zone bond. German Bunds and UK Gilts are seeing some light buying with German yields lower by as much as 5 bps and Gilts off 1 to 2 bps. The 10-yr Bund is now yielding 2.322% while the 10-yr Gilt is near 2.520%.