August 30th, 2011 10:04 PM by Lehel S.
A better open this morning in the bond and mortgage markets; the stock indexes pointing to a lower open. Two days of stock market rallies generally leads to a day of decline as investors are still unwilling to jump in heavily. On the bond and mortgage markets, the rate markets are likely to continue their sideway movement until at least Friday when the August employment report is released. The MBS market continues to be volatile with price changes as much as 7/32 a click at times; this morning 30 yr MBSs traded +11/32 (.34 bp), in one trade the price fell 7/32 (.22 bp).
Charles Evans, Chicago Fed President, on CNBC this morning suggesting the Fed should be doing much more; he mentioned the Fed should increase its inflation target to 3.0% in an effort to reflate prices, he suggests he would like to see more stimulus, he wants the Fed to set a target for low rates possibly tied to employment like until the unemployment rate falls to 7.5% as an example. He isn't one in the camp that believes there will be no double dip; another Fed voice and another opinion. At 2:00 this afternoon the Fed will release the minutes of the FOMC meeting on 8/9 wherein there was a lot of dissention within the members debating the economic outlook and led up to the famous "the Fed will leave rates at these levels until mid-2013". The minutes should be interesting, if not market moving. Evans does not believe the Fed's low rates has inflated commodity prices; on that comment gold jumped $40.00.
June Case/Shiller home price index at 9:00 am; Q2 overall +3.6%; in June up 1.1%. It covers 20 cities, a lot of data that essentially doesn't have much new news in it. The index of property values in 20 cities fell 4.5% from June 2010, after a 4.6% drop in the 12 months ended May that was the biggest since 2009.
At 9:30 the DJIA opened -50; mortgage prices that were +11/32 at 9:00 fell back to +4/32 at 9:30.The 10 yr note up 19/32 at 9:30 at 2.20% -6 bp. MBSs are looking weaker than what we expect, low volume and the Case/Shiller data this morning might be a drag. Prior to 9:30 the stock indexes were trading much weaker than at the actual open.
At 10:00 August consumer confidence; expected at 52.0 frm 59.5, fell to 44.5; the expectations index fell to 51.9 frm 74.9 and the jobs-hard-to-get index at 49.1 frm 44.8 in July. The reaction was swift; the 10 yr note jumped to +27/32 to 2.17%, mortgage prices no change on the data; the DJIA down 107. Just prior to the release the DJIA -27, the 10 yr note +23/32 and mortgage prices up 10/32 (.31 bp)
Bonds and mortgages are likely to continue sideway movement until Friday's employment data. After employment its the President and his next major speech on the 5th of Sept where he will reveal what plans he has to boost the economy, the housing markets and employment.