Early activity saw stock indexes a little weaker this morning after the DJIA jumped 204 points last Friday. The 10 yr note at 9:00 am +10/32 at +12/32 at 1.46% and 30 yr mortgages +7/32 (.22 bp) frm Friday’s close. Prior to 8:30 data the 10 yr traded unchanged at 1.49% but June retail sales reported at 8:30 were much weaker than what was thought. Overall sales expected up 0.2% fell -0.5%; ex auto sales was expected +0.1%, was down 0.4%. The softer sales data sparked a little buying in treasuries and mortgages but really didn’t have much of an impact on the key stock indexes. A weakening job market is sapping households of the confidence and income gains needed to boost expenditures, which account for about 70% of the economy. Without gains in spending at retailers the economy isn’t going to improve and may slip further.
At 8:30 the July NY Empire State manufacturing index was better than forecasts. Up to 7.39 frm 2.3 in June; estimates were for the index at 3.8. New orders decreased to minus 2.7 this month from +2.2 the prior month. A measure of shipments rose to 10.3 from 4.8. The employment measure rose to 18.5, from 12.4 in June. The index of prices paid fell to 7.4 from 19.6. That new orders declined offset the better overall index and the increase in the employment index. At 10:00 May business inventories were expected +0.2%, as reported up 0.3%
At 9:30 the stock market opened weaker; the DJIA -30, NASDAQ -6, S&P -3. The 10 yr note at 9:30 1.45%, 30 yr mortgage prices +10/32 (.31 bp).
This week has a lot of data to focus on and Fed chief Bernanke testifying at Congress on Tuesday and Wednesday. This morning the bellwether 10 yr is at its key technical resistance. Global economies continue to decline with the IMF out this morning once again lowering its forecasts for growth.
In Europe this morning, the ECB would no longer oppose the forcing of losses on senior bondholders of euro-area banks. The Wall Street Journal today reported the ECB’s change of position, after the Frankfurt-based ECB consistently opposed handing losses to senior creditors of Irish banks following the collapse of the country’s financial sector. The ECB also opposed efforts to restructure Greek sovereign debt and refused to take losses on Greek government bonds held on its balance sheet earlier this year. European officials are now debating how best to rescue Spain’s banks after its leaders requested 100 billion euros ($122 billion) of international aid last month, becoming the fourth euro nation to seek help after Greece, Ireland and Portugal.
This morning the 5 yr treasury set a new record low yield while the benchmark 10 yr note at 1.44% is 5 basis points lower and a record low. While at 1.45% and fractionally below 1.46% the key technical resistance, we would want to see some follow-though to the rally to confirm the 10 yr will move to lower rates. With Bernanke testifying tomorrow and Wednesday traders will look for anything in his statement or in the Q&A that would signal the Fed will ease again. If the Fed does another easing move we think the Fed will concentrate more on buying MBSs as well as long term treasuries. As we have noted in the past, an easing won’t do much to turn the slowing economy and it won’t contribute to adding any jobs, but the hope is banks will loosen lending practices thus increasing borrowing. It is unlikely though that will actually occur. The crux is that consumers are not in a borrowing mode except re-financing mortgages.
Tags: 10 year US Treasury bond yield, Europe debt crisis, market preview, mortgage rates outlook