Market commentary

Bonds are improving again this morning on a report that personal income for the month of August fell 0.1%, and was revised down to 0.1% growth in July. This was the first outright decline in income since October 2009. Consumer spending, however, rose 0.2%, with the increase in spending the result of consumers dipping into savings, which is not a sustainable factor for economic growth.

Continuing with the consumer theme, the Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 59.4 this month from 55.7 in August.

On the business side of the economy, the Institute for Supply Management-Chicago reported its business barometer rose to 60.4 this month from 56.5 in August. A level of 50 is the dividing line between expansion and contraction, and we will see the national version of this data next week.

The positive news on consumer confidence and manufacturing has not been enough to offset the negative effect of the personal income report and the continuing saga coming from Europe. The yield on the 10 year note has fallen to 1.95% and mortgage prices have improved approximately .25%.

Market commentary

While trying to decide if today’s economic data is actually good news, or just “less bad” news we can report the following: Initial jobless claims for the week ending September 24 dropped from 428,000 to 391,000, the lowest number of claims since April, 2011. And Gross Domestic Product (GDP) for the 2nd quarter was revised slightly higher this morning from an annualized rate of 1.0% to 1.3%. Not exactly a stellar performance, but a step in the right direction.

On the European front, the German Parliament voted this morning to support expansion of the euro zone rescue fund. Recall this fund was established with the authority to buy bonds from the market, enable bank recapitalizations, and provide precautionary credit lines. The measure also increases Germany’s stake in the fund from €123 billion to €211 billion. All 17 member countries must approve of the plan, and 11 have already done so. If I were a German taxpayer I would be thrilled to increase my tax burden to bailout my less frugal brethern to the south.

U.S. Treasuries were unaffected by today’s data and news, with the yield on the 10 year note remaining above 2.00% at 2.015%. Prices for mortgages are worse by a few basis points.

Market commentary

Post last week’s Fed announcement the markets experienced 3 days of emotional, perhaps even a panic reaction as investors fled risk assets such as stocks, and dove into the relative safety of U.S. Treasuries. It seems after taking the weekend off, and receiving indications the Europeans may actually have the resolve to salvage the Euro, steadier nerves have replaced the panic. Investors, seeing cheaper stock prices, have piled in and sold Treasuries, pushing interest rates higher. The yield on the 10 year note hit a low of 1.74% last week and is now trading at 2.045%, and mortgage bonds have given back over 100 basis points in price.

This trend continues today, with investors pushing interest rates higher, even though stocks remain relatively flat.

Today’s Durable Goods report from the Commerce Department suggests some businesses are investing in capital equipment, as new orders for these items rose 1.1% after falling .02% in August. This data had little effect on the markets.

Market commentary

Bond prices suffered a significant setback and stocks put in a strong rally on Monday as the European Union seemed to finally be making progress in resolving its financial woes. The same story is the headline this morning; stocks are moving sharply higher and bonds struggle. The yield on the 10 year note is close to pushing above the 2.0% mark, with a current yield of 1.99%. In conjunction with the decline in Treasures, mortgage prices are worse by approximately .25%.

In terms of data, home values continue to sag as reported by the S&P/Case-Shiller index. The latest reading for this index reflects property values in the 20 cities measured declined 4.1% in the 12 months from July 2010.

Later today the U.S. Treasury will auction $35 billion of 2 year notes; the same maturity as the notes being sold by the Fed in their “operation twist” announced last week. This should be interesting to watch.

Market commentary

The Dow Jones Industrial Average suffered its worst performance since the throes of the financial crisis in 2008 last week, dropping 740 points or 6.4%. Sentiment soured over the week on the prospects of a weak U.S. economy and an unresolved crisis in Europe.

In today’s economic data the Commerce Department reported purchases of new houses in the U.S. declined in August to a six-month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties. Sales dropped 2.3% to a 295,000 annual pace, while the median price slumped 7.7% compared to August 2010.

The economic data calendar is full this week with data on the housing sector, consumer confidence, manufacturing activity and inflation, and the U.S. Treasury is also auctioning 2 year, 5 year and 7 year notes.

After last week’s volatility this morning is a yawner as we see stock slightly higher and bonds fading. The yield on the 10 year note has risen to 1.86% and mortgages are worse by approximately .25%.

Market commentary

Wednesday was all about new makers. Moody’s downgraded Bank of America, Citi, and Wells Fargo, a move that surprised the equity markets and began the negative sentiment in the stock market. The House of Representatives voted down a bill to continue funding the government past the fiscal year end of September 30, setting up another possible showdown and creating additional uncertainty in an already fragile market.

Finally, the Fed again went all-in, announcing an active “twist” policy and jumping back into the mortgage market. While some had thought that the Fed might just alter its reinvestment strategy, the Fed went further by announcing that it will sell $400 billion in Treasuries maturing in less than 3yrs and use the proceeds to purchase maturities from 6 years through 30 years. Those purchases will be allocated to 32% 6-8yr, 32% 8-10yr, 4% 10-20yr, 29% 20-30yr, and 3% TIPs. The biggest surprise of the FOMC’s announcement was that the Fed will reinvest mortgage and agency principal payments into mortgage securities. While the dollars that such a move will direct into mortgage securities will not be that significant (estimated at around $15 billion to $20 billion per month for nine months), the move does signal both support for the mortgage market as well as a desire to facilitate consumer refinancings.

The markets reacted violently on this news as stocks plummeted and U.S. Treasuries soared, a pattern that is repeating itself this morning. The yield on the 10 year note fell to 1.87% and is trading at 1.77% this morning; a record low! Mortgage bonds rallied as well, gaining over 1.0% on lower coupons, while compressing prices on higher coupons.

Market commentary

U.S. stocks and bonds are trading flat this morning as all await the results of the FOMC meeting at 2:15 p.m. ET. It does not appear that Chairman Bernanke will have a post-meeting press conference as had been originally expected. Some analysts have speculated that the Fed will announce $50 to $60 billion in monthly Treasury swaps (selling 1-to 5-year notes and buying 5- to 10-year notes) for a six-month period in what has been referred to as “operation twist.” This is generally what the market is now expecting, so anything smaller, larger or different could get a response from the markets. Stay tuned!

Market commentary

Housing starts in August fell from 601,000 to 571,000, more than double the expected declined. However, a bright spot appeared as building permits rose.

Last night Standard and Poor’s cut Italy’s rating from A+ to A using a similar rationale when S & P downgraded the U.S. It seems Italy’s political leadership is hesitant to tackle the challenges facing their country, much as the U.S. political leadership is.

The drama in Greece continues with another round of talks scheduled for today between Greek and EU officials. Hmmm, I wonder if Las Vegas is making odds on whether or not Greece will default on its debt.

After a nice rally Monday, bonds faded into the close and are lower again this morning. Mortgage prices are worse by approximately .25% from Monday’s mid-day price improvement.

Market commentary

Economic data is light this week and the main focus of the markets will be the two day Fed meeting. The consensus of Fed watchers expect an announcement that will include the purchase of medium term Treasury debt in an effort to force longer term interest rates lower. However, the bond market has already priced this in.

Between now and the Fed meeting Europe remains front and center, as EU finance ministers left their weekend meeting with no resolution to the debt crisis. The markets are bracing for the worst, which is a default by Greece on its debt. The lack of progress in the EU debt talks has U.S. stocks in a broad sell-off and a flight to safety in U.S. Treasuries. The yield on the 10 year note has once again fallen below 2.00%, currently trading at 1.965%, and mortgage prices have improved by .375% to .50% from Friday.

Market commentary

U.S. consumer sentiment, as measured by the Reuters/University of Michigan survey, inched higher from 55.7, the lowest level since 2008, to 57.8. The gauge of consumer expectations, however, floundered, coming in at 47.0, the lowest level since 1980. Clearly consumers are retrenching as poor economic data, concern about jobs, the lack of leadership coming from Washington D.C., and the continuing headlines of a pending financial crisis in Europe take their toll.

U.S. Treasuries sold off yesterday on stronger statements of support from Germany and France along with the announcement of coordinated central bank efforts to provide dollar liquidity to the euro zone banks. The European Central Bank announced the U.S. Federal Reserve, Bank of England, Bank of Japan, and Swiss National Bank will work with the ECB to provide three-month term dollar borrowing of unlimited quantity. In other words, another bailout of unlimited scope.

Mortgage prices are unchanged from the market close on Thursday.

Market commentary

In today’s early morning releases initial jobless claims rose 11,000 to 428,000 for the week ending September 10. With the four-week moving average is now up to 419,500, there are very few positive signs for the labor market out there right now which initial claims data reaffirm every week. Also released this morning, the New York Fed manufacturing index for its region dropped again from -7.7 to -8.8.

On the inflation front the August Consumer Price Index was also released this morning and showed a larger than expected increase in prices. Overall prices rose 0.4% month over month bringing the annualized pace of price growth to 3.8%. Excluding food and energy prices rose 0.2% putting the year over year core rate of inflation at 2.0%.

The last piece of data was the Fed’s Industrial production report for August which reflected an increase of 0.2% after increasing 0.9% in July.

For the most part today’s data is negative as the labor market remains in the doldrums, and excluding energy costs consumer prices are moving higher. This data was mostly ignored by the markets, though, as the news that the ECB, the Fed and other central banks around the world will cooperate to offer short term loans to European banks to prevent money markets from freezing. This news sponsored a rally in stock prices, especially financial shares, and an unwinding of the safe haven bid in U.S. Treasuries. The yield on the 10 year note is now at 2.07% and mortgage prices are worse again today by another .25%.

Market commentary

Producer prices were flat in August as costs for energy and autos dropped. Core prices, excluding food and energy, rose just 0.1%, so a bit of good news on the inflation front. With some less positive news, the Commerce Department reported this morning retail sales for August did not increase and they only rose 0.3% in July, less than the originally estimated 0.5%. Consumers are being overwhelmed by a loss of confidence, a flat jobs market, and weak earnings growth, among other headwinds.
A large portion of those headwinds continue to blow across from Europe with the constant deluge of potential defaults by various countries on their debt. Reuters reported this morning that U.S. banks are coming to the rescue of several of their European counterparts as EU banks saw funding from U.S. money market funds dry up. While the U.S. banks are providing secured funding at higher than market interest rates, I remain skeptical. Should the EU banks default who will provide the bailout funds? Assuming a similar 2008 scenario, I expect you and me, as U.S. taxpayers, in addition to our European taxpayer buddies.
The effect of today’s economic data and news on U.S. markets has been close to nil, with stocks and bonds relatively flat from the close on Tuesday. Mortgage prices have improved approximately .125%.

Market commentary

Monday had the beginnings of a horrible day for stocks as the European debt crisis seemed to reach a critical stage. A late day story that China was considering buying Italian debt gave stocks some legs and they ended the day higher. This morning we have continued rumors from Europe, however, U.S. markets seem unaffected with stock flat and treasuries giving back some of their flight to safety gains.

In front of this afternoon’s U.S. Treasury auction of 10 year notes the yield on the 10 year note has risen to 1.98% after briefly touching a low of 1.88% early Monday morning. Mortgage pricing is worse by approximately .25%.

Market commentary

With no U.S. economic releases this morning, Europe and the rumors of Greece defaulting on their debt are what is driving the market. U.S. stock markets are trading lower, treasuries are flat, however, mortgages are worse by .375% to .50%.

Later today the U.S. Treasury will auction $32 billion of 3 year notes, and the remainder of the week is heavy with economic data, including the Producer and Consumer price index, Retail Sales, Industrial Production and consumer confidence.

Market commentary

President Obama’s address to Congress, while rousing, proved to be little more than the trial balloons had suggested. Global and U.S. stock markets were disappointed in the lack of details, and there is not much different in this plan from the previous stimulus plan; lots of borrowed money going to support state and local governments, the long term unemployed, etc. Business leaders, analysts and many economists continue to state the obvious; the one thing that continues to be missing from the discussion is getting to a point of clarity on Dodd-Frank and "ObamaCare". It is the uncertainty as to what the final regulations will look like that makes business reluctant to hire workers and consumers reluctant to purchase a new home, a first home or to move up. As one analysis I read stated, “We don't need more monetary stimulus. We probably need less fiscal stimulus than most expect. What we need is clarity, and that appears not to be on the table for either side”.

As of this writing the DOW is lower by 230 points and bonds are flat from Thursday’s close. Mortgage prices have improved slightly from Thursday.

Market commentary

Initial jobless claims for the week ending September 3 unexpectedly rose from 412,000 to 414,000. This makes 21 of 22 weeks that the claims number has been above 400,000, and is clear indication unemployment in the U.S. will not decline anytime soon.

Speaking of jobs, President Obama is set to address some members of Congress tonight to present his much hyped jobs proposal. You will recall the markets tanked two weeks ago when German Chancellor Merkel and French President Sarkozy built up a similar speech that failed to deliver any new ideas. Given the partisan political atmosphere in Washington D.C., the markets will be looking for something that stands a chance of passing through both Chambers of Congress.

Fed Chairman Bernanke speaks at 10:30 A.M., PT today which speech is expected to give insight into the policy tools the members of the FOMC will discuss at their meeting later this month. At approximately the same time we will see the results of the U.S. Treasury’s 30 year bond auction.

The markets must be a bit tired from the volatility this week as both stocks and bonds are relatively flat to their respective closes on Wednesday.

Market commentary

No major data releases this morning to drive trading, however, U. S. stock markets are reversing Tuesday’s declines in a big way with the DOW higher by 180 points. As often happens when stocks rally bond prices are headed lower pushing interest rates higher.

Later today the Fed will release its Beige Book, a report of economic activity in the various Fed districts, and the U.S. Treasury will auction $12 billion of 10 year notes.

Market commentary

Positive news from on the non-manufacturing sector was not enough to rescue stocks this morning. The ISM non-manufacturing index rose to 53.3 in August, up from 52.7 in July and higher than the forecast drop to 51.0. The one sour note in the report was the drop in the employment index, which is consistent with the overall job situation in the U.S.

This report follow Friday’s dismal employment report and comes just two days prior to President Obama’s Thursday night jobs speech. Following this data U.S. stocks are down sharply in a broad sell-off. Treasury bonds are rallying, mostly on the long end with the price of the 30 year bond higher by over 1.00%, but the 10 year note is higher by only a few basis points, pushing the yield down to 1.96%.

This week marks another round of U.S. debt auctions beginning today with $32 billion of 3 year notes, followed Wednesday with $21 billion 10 year notes, and Thursday with $13 billion of 30 year bonds.

Market commentary

There were no nonfarm payrolls; or in other words, zero jobs, created in the month of August. The previous two month’s worth of payroll data was revised down 58,000 including a drop in July payrolls from 117,000 to 85,000. In the private sector, there were 17,000 jobs created in August versus 156,000 in July.

Treasury prices immediately rallied on the news, with the yield on the 10 year note falling to 2.04% from 2.17%. Given the weak jobs report the Fed may be inclined to implement some form of QE3, so any further improvement in Treasuries may be muted until the markets hear from the Fed. Mortgage prices have improved approximately .375%.

Market commentary

Treasury yields rose yesterday, with the 10 year note rising 10 bps from its intraday low yield of 2.14% up to 2.24% by the close. Pricing on mortgages kept pace with Treasuries, falling .375% to .50% by the close of trading, forcing lenders to reprice for the worse mid-day.

Economic data this morning reflects an economy that continues to weaken. The ISM manufacturing report did not dip below 50.0 as was expected in August, but did decline from 50.9 to 50.6, with the majority of the underlying components contracting.

Initial jobless claims remain above the 400,000 mark. For the week ending August 27 new claims were 409,000, and the four week moving average of claims rose from 408,500 to 410,300.

On the productivity front, nonfarm productivity dropped in the second quarter by 0.7%. This is a data point the Fed watches as weaker productivity implies higher costs to produce a product or service, or said another way, inflationary pressures. Unit labor costs rose from 2.2% to 3.3% for the quarter.