Market Snapshot 10/10/2011

This Week; today the bond and mortgage markets are closed for Columbus Day but the rest of the markets are open. Over the weekend France and Germany announced they would re-capitalize Europe's banks in a major move to fend of Greek default, or at least put it off a while longer. On the news Europe's stock markets rallied and the US stock indexes also improved. Interest rates in Europe are about 3 to 5 basis points higher in yields, if our bond market was open today the 10 yr and mortgages would be starting the day lower in prices and higher in rates.

This week Treasury will auction $66B in notes and bonds; Tuesday $32B of 3 yr notes, Wednesday $21B of 10 yr notes and Thursday $13B of 30 yr bonds. Economic data is skimpy; weekly claims on Thursday of course, Friday Sept retail sales and the U. of Michigan consumer sentiment index are about it. Focus will continue to be on how Europe progresses with the debt mess. As noted, over the weekend some positive news but no real details; over the past year we have been here before a number of times only to witness one failure after another.

Last week the bond and mortgage markets broke some critical technical support levels, unless the rate markets find footing at the present levels the near outlook is becoming more negative. The markets still carry huge volatility however. Europe will dictate the direction in US equities and bonds. Recently analysts are forecasting better economic outlooks for Q3 and Q4 with some now forecasting +2.5% GDP in Q3 and +3.0% in Q4. We don't believe the economy will improve that much but the optimism in the markets is increasing.