Market Snap Shot - Oct. 26, 2009

Markets started unchanged this morning with no data or anything else of consequence. At 8:30 the 10 yr -1/32, mtgs unchanged; at 9:00 10 yr -4/32 and mortgages -2/32, the DJIA +20. At 9:30 the DJIA opened +30, the 10 yr note breached its key psychological and technical support at 3.50%, -9/32 at 3.52%, mortgage prices -6/32 (.18 bp).
 
No economic releases today; Treasury will sell $7B of 5 yr inflation indexed notes at 1:00 this afternoon, likely to see decent demand and not generally much interest to traders. After today however the calendar is loaded and Treasury will auction $116B of notes.
 
This Week's Calendar:
          Tuesday;
               9:00 Aug Case/Shiller Home Price Index (-11.9% frm -13.3% in July)
              10:00 Oct Consumer Confidence ( 53.5 frm 53.1)
              1:00 $44B 2 yr note auction
        Wednesday;
              8:30 Sept durable goods orders (+1.0%; ex-transportation orders +0.7%)
              10:00 Sept new home sales (+2.5% to 440K units annualized)
              1:00 $41B 5 yr note auction
        Thursday;
              8:30 weekly jobless claims (-6K to 525K, continuing claims 5.915 mil frm 5.923 mil)
                     Q3 advance GDP report (+3.2% frm -0.7% in Q2)
                     Q3 chain weight deflator +1.3%, Q2 unch)
              1:00 $31B 7 yr note auction
        Friday;
              8:30 Sept personal income and spending (income unch, spending -0.5%)
                     Sept personal consumption expenditures (PCE) (-0.5% overall, ex food and energy +0.2%)
              9:45 Chicago purchasing mgrs index (48.7 frm 46.1 in Sept)
              9:55 U. of Michigan consumer sentiment index (70.0 frm 69.4)
             10:00 Q3 employment cost index (+0.4%)
 
Not what we wanted to see this morning, the 10 yr note is breaking key support at 3.50%. Mortgages following with prices falling. Supply and expected better economic releases this week are taking their toll at the moment. Although the 10 yr and mortgages continue negative direction, we won't completely toss in the towel just yet, but the path for rates is not looking good. Central bankers are focusing on increasing base rates; three weeks ago Australia increased its rate by 25 basis point, over the weekend Norway joined in and is expected to raise its rate on Wednesday. The reason both countries are giving is an increase in home prices in those countries. Talk among central bankers now is redirecting thinking to focus directly on asset prices rather than overall inflation when setting monetary policy. The Fed is reviewing whether recent gains in asset prices and narrowing credit spreads are justified as they try to ensure near-zero borrowing costs don’t generate future market turmoil. Increasingly more market concerns that tightening efforts are not far off; markets won't wait to see what the Fed will do and are becoming more bearish toward the interest rate outlook.
 
It is a consensus among traders; that the stock market is overdue for a correction. Just about every trader we hear from is expecting the key indexes to roll over. While they expect it, equally they are unwilling to jump ship as no matter how over-baked they think the market is, it keeps on climbing. One or two days of minor pullbacks are met with buying as investors looking at the longer view buy the dips, fearing being left behind. As long as there is the belief the economy will continue to improve, no end to where equity markets can go, and no opportunity for interest rates to decline much.

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