Market Snapshot 10/31/2011

This Week; two things dominate. Wednesday Bernanke will hold a press conference at the conclusion of the two day FOMC meeting, and Friday the October employment report. Interest rates have increased from the 21st of Sept FOMC meeting at which the Fed Started Operation Twist, buying long dated treasuries and MBSs with the intent of keeping long term (mortgage rates) low in an effort to help the housing sector. Bernanke said he expected the Twist would  push the 10 yr note rte down 50 basis points. It worked for one day but at the moment the 10 yr note is 30 basis points higher than the day the Twist was announced. The Fed has to be concerned, there are no real fiscal efforts in place and lower interest rates have had little positive impact.

The employment report on Friday is expected to be weaker than last month, non-farm jobs up 88K (last month +103k), non-farm private jobs +114K (last month (+137K), the unemployment rate at 9.1% unchanged. There has been no improvement in the unemployment rate this year, Congress and the Administration are impotent and it doesn't seem to phase them as politicians are now only concerned whether they can keep their cushy jobs and huge retirement benefits.

Europe's problems persist but this week likely not much of substance will come out of the region. That said, any news from Europe has a direct impact on US markets. While employment and the FOMC meeting are hardliners this week, there are also a number of key data points to consider. Expect volatility with only minor changes in the bond and mortgage markets with wide swings. Technically the bond market is bearish but somewhat over sold while the stock market is technically bullish but also overbought. 

The only scheduled data today, Oct Chicago purchasing mgrs index; expected at 58.9 was weaker at 58.4. The new orders component at 61.3 frm 65.3, prices paid 66.0 frm 62.3 and employment at 62.3 frm 60.6. No real change in markets on the data; although weaker not by much and employment index increased a little.

This Week's Economic Calendar:

        Monday,

            9:45 am Oct Chicago purchasing mgrs index (expected at 58.9 frm 60.4; as reported 58.4)

        Tuesday;

            10:00 am Oct ISM manufacturing index (52.1 frm 51.6)

                          Sept construction spending (+0.3% frm +1.4% in August)

             3:00 pm Oct auto and truck sales (N/A)

        Wednesday;

             7:00 am weekly MBA mortgage applications (N/A)

             8:15 am ADP Oct non-farm private jobs estimate (+100K)

             12:30 pm FOMC policy decision

             2:00 pm Bernanke press conference

        Thursday;

             8:30 am weekly jobless claims (unch at 402K)

                          Q3 productivity (+2.8%)

                          Q3 unit labor costs (-1.1%)

             10:00 am Sept factory orders (-0.2%)

                          ISM Oct services sector index (53.7 frm 53.0)

        Friday;

             8:30 Oct unemployment rate (9.1% unch)

                     Oct non-farm jobs (+88K, non-farm private jobs +114K)

The stock market is opening weaker this morning after a big week last week. Time to consolidate after the very powerful Oct; investors not likely to be too interested in jumping in at the present levels. Same trade today; buy treasuries when stocks are weak, sell treasuries when stocks rally. With Europe still unable to come up with details but sending off positive vibes the US markets sighed a huge relief last week that maybe Europe is getting serious. Markets believed that a number of times over the past year or so, only to be disappointed on no progress follow-through.  At 9:30 the DJIA opened -115, the 10 yr note +27/32 to 2.23% -9 bp, mortgage prices +13/32 (.41 bp).

As noted last week after the spike higher in rates, volatility in the market will increase. Fundamentally at the moment investors have increased their bullish outlook for the economy; it may be a huge leap of faith and is fueled to some extent that the Fed will do something that will keep rates low and in turn force investors to increase the risk trade buying equities. Technically, the bond and mortgage markets continue their bearish bias, however with increased volatility can move bond prices in wide ranges as we have already this morning.