August 2nd, 2010 8:54 AM by Lehel S.
Stock indexes this morning started stronger and pushed prices lower in mortgages and treasuries. Nothing significant, just the continuation of the choppy market conditions. On the rate markets, the 10 yr note yield fell 10 basis points last week to run to the lowest levels seen in the past six weeks but didn't break the resistance at 2.88%, closing at 2.91% on Friday. This week has much to think about with many data points through the week, but the key this week that should keep a lid on any significant changes is Friday's July employment report. Between now and Friday data interest rates may increase slightly but in choppy trading as estimates of employment are soft with lots of talk but not much conviction.
At 9:00 this morning the DJIA traded up 128, the 10 yr note -9/32 at 2.95% +4 bp and mortgage prices -5/32 (.15 bp) frm Friday's close. At 9:30 the DJIA opened +130, the 10 yr note -10/32 at 2.95% +4 bp and mortgage prices -7/32 (.22 bp) frm Friday's close.
At 10:00 two reports; June construction spending was expected down 0.8% it was up 0.1%, all of the increase was in government spending no increase in private construction. The July ISM manufacturing index fell to 55.5 frm 56.2 but was anticipated to have declined to 54.2, the new orders component fell to 53.5 frm 58.5, employment at 58.6 frm 57.8 and priced pd index at 57.5 frm 57.0. The ISM data was better overall than expected and jumped stock indexes and pushed treasury prices lower on the initial knee jerk. Any index read over 50 is considered expansion, traders are encouraged that the report is considered better than forecast.
This week's Economic Calendar;
8:30 July personal income and spending (income +0.1%, spending unch)
10:00 June factory orders (-0.5%)
June pending home sales -5.0%
2:00 July auto and truck sales
7:00 weekly MBA mortgage applications
8:15 ADP July private jobs estimate (+25K)
10:00 ISM Services sector index (53.0 frm 53.8 in June)
8:30 weekly jobless claims (-2K to 455K, continuing claims 4.530 mil frm 4.565 mil)
8:30 July employment from BLS ( non-farm jobs -70K; private jobs +100K)
July unemployment rate (9.6% frm 9.5%)
3:00 June Consumer Credit (-$5.7B)
In recognition that employment is the key this week click on this address for an interesting view of unemployment from 2007 now. A picture they say is worth a lot.
On Wednesday Treasury will announce next week's auctions of 3 yr, 10 yr and 30 yr treasuries.Every other week Treasury borrows to fund the continuing budget deficits; back in the day auctions usually pressured the rate markets but over the past 18 months the demand for treasuries has been very strong and in turn we don't have the pushback in prices that was mostly the norm prior to the recession.
Three times in the month of July the bellwether 10 yr note yield fell to 2.88% area and so each time that has capped rallies in treasuries and mortgages. Last Friday the 10 yr note fell to 2.90% close enough for us to consider it the third run lower, this morning rates are softer as a result and on the strong trading early this morning in the stock market. While rates are soft against technical resistance, the larger perspective remains constructive for rates and still questionable in our view
Although the equity markets started strong this morning the odds the key indexes will maintain the huge gains are not high. Equity markets and rate markets are likely to churn through the week with little overall changes until employment on Friday. On Friday the Q2 GDP advance data with its revisions is still out there in the minds of investors, traders don't much care because their time frames are measured in hours and days. In 2009 GDP was revised from -2.4% to -2.6%; 2008 revised from +0.4% to unchanged and 2007 revised from +2.1% to +1.9%. Will the lowered GDP revisions finally wake up markets and media that unless consumers spend the economy will not grow? Or will this data be swept under again in favor of corporate earnings as the economic driver? How many times do markets need to be reminded that until consumers open up and spend the economy is not going to improve, and eventually those better than expected corporate earnings built on massive cost cutting will wane?