April 7th, 2011 9:18 AM by Lehel S.
Treasuries and mortgages started a little weaker this morning; at 8:00 the 10 yr -5/32 and mortgages -2/32 (.06 bp). By 9:00 the 10 moved back to unchanged and mortgages +1/32 (.03 bp) frm yesterday's close. US stock indexes in pre-market trading were unchanged at 9:00. At 9:30 the DJIA opened -9, 10 yr note +1/32 3.55% unch, mortgage prices
+2/32 on 30s, +3/32 on 15s.
Weekly jobless claims at 8:30 were down 10K to 382K after another slight upward revision last week from 388K to 392K, the second week in a row claims have been revised a little higher from original reports. Continuing claims edged lower, to 3.72 mil from 3.73 mil last week.
A lot of media focus on the budget talks in Washington and to keep everyone on edge hyping the possibility of a government shutdown that is very unlikely. The Pres and Congressional leaders are close to an agreement to avoid even a few days of closings. This budget debate only deals with the budget through the end of this fiscal year (Sept); it is a prelim to the big debate (fight) over the 2012 budget. Politicians talk the talk about getting the budget deficit under control but for many years have not had the guts to walk the walk. Even some economists are out there saying the budget isn't a priority, zombies walking in a death gaze.
March chain store sales were better than expected. Not much, but better overall. Markets expected it and the various reports have done little to motivate investors.
Later this morning Treasury will announce the details for next week's auctions; 3 yr and 10 yr notes and 30 yr bond should total $66B down from $72B on last months same auctions.
The European Central Bank did what was widely expected and telegraphed by Jean Claude Trichet the head man at the ECB; it increased its base rate to 1.25% from 1.00%, the first rate increase in three years. Trichet said the increase was not the beginning of a series of increases, but most economists believe it is and that the rate will be at 1.75% by the end of the year. German economic growth and increasing signs of inflation in Europe is setting up more rate hikes justifying that rationale. Today’s ECB rate increase is the first since July 2008 and also the first time in 40 years that Europe’s benchmark has risen before the U.S. equivalent. Our Fed is reluctant to move rates on the belief that inflation isn't a problem and that the economy is still weaker than what the Fed wants to see.
The Bank of England also met today but left its base rate unchanged their policy makers judged the need to aid the recovery took precedence over the fastest inflation in more than two years. England's rate is 0.5% and has been at that level for 26 months. UK service sector saw improvement last month as announced Tuesday but manufacturing stalled in Feb. The UK struggling with inflation increase while consumer spending is being pressured by higher prices. The British Chamber of Commerce this week said first- quarter growth was probably between 0.6% and 0.7%. It said this is weaker than expected and adds to the argument that the Bank of England should delay raising its key interest rate.
Yesterday the 10 yr note broke its near term minor support at 3.50% to close at 3.55%. The 10 is now trading above its 20 and 40 day MAs on the yield chart. Mortgage markets also seeing breaks on its charts, slightly below the 20 and 40 day MAs on the price charts.