Market Snapshot 11/14/2011

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Treasuries and mortgage markets were closed last Friday for Veteran's Day; the stock market and most other bourses were open. The DJIA rallied 259 points, NASDAQ +54 and the S&P +24. Likely had the bond market traded prices would have been lower. This morning the indexes prior to 9:30 were generally flat from Friday's closes. US interest rates are faltering at present levels; mortgage prices trading in a narrow range with the 10 yr note losing any momentum when it approaches 2.00%.

 

This week; still all about what comes from Europe as it continues to tilt at windmills unable financially to step up and cover the troubled countries that hang on the cliff of default. Italy made a positive step last week with Berlusconi agreeing to step down and a new leader in place (Monti), a financial guy, to form a technocratic government ( no politicians) to work out a budget that will save the country from defaulting. Italy is so big and carries more debt than the EU and ECB can handle. The bellwether 10 yr note still is unable to break below 2.00% with any momentum (2.09% early Monday morning). Mortgage prices and rates are stuck in a very tight range with very little change in rates for the last couple of weeks.

Italian bonds and stocks erased early gains and declined as Monti met with leaders of the country’s political parties to discuss Cabinet nominees. The yield on Italy’s benchmark 10-year bond rose 19 basis points to 6.64% this morning.  The professor, as Monti is known, already faces resistance to appointing some politicians to his so-called technical Cabinet. Europe is a dead man walking when it comes to dealing with the debt crisis; even if the ECB wanted to pump funds to Italy, it doesn't have enough to make a dent in the debt. Germany and France will not pony up anymore funds as their citizens resist the financial stress it would out on each country.The inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian bond yields as investors bet on which nation may need aid next. Monti, an economist and former adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro ($2.6 trillion) debt load and spur economic growth that has lagged behind the euro-region average for more than a decade.

Italy’s bond sale today highlighted investor skepticism that euro area’s leaders will struggle to push through reforms needed to end the debt crisis. Italian bonds today fell for the first time in three days, after the government sold 3 billion euros ($4.1 billion) of five-year notes, the maximum target, at the highest yield in more than 14 years. Rising yields highlighted the challenge facing the new government.

This week, no economic releases on Monday but we have a lot of key data through the rest of the week. Inflation reads, retail sales, reports on factory usage and output, housing starts and permits and the key Philly Fed business index. Economic releases recently have been secondary to the constant and confusing news that seeps out daily from Europe. This week leads into next week's short week with Thanksgiving holiday taking 2 days out of play and likely thin volume as investors wind down. The rate markets are stumbling at present levels, the longer the 10 yr fails to break 2.00% the more tedious the outlook becomes.

This Week's Economic Calendar:

              Tuesday;

                 8:30 am Oct PPI (-0.2%, ex food and energy +0.1%)

                              Oct retail sales (+0.4%; ex auto sales +0.2%)

                              Nov Empire State manufacturing index (-0.8 frm -8.48 in Oct)

                 10:00 am Sept business inventories (+0.2%)

              Wednesday;

                 7:00 am weekly MBA mortgage applications

                 8:30 am Oct CPI (0.0%, ex food and energy +0.1%)

                 9:15 Oct industrial production (+0.4%)

                        Oct capacity utilization (77.6% frm 77.4% in Sept)

                 10:00 am NAHB Nov housing mkt index (18 unch)

             Thursday;

                 8:30 am weekly jobless claims (+10K to 400K; con't claims 3.648 mil frm 3.615 mil)

                             Oct housing starts and permits (starts -8.0%, permits +7.7%)

                 10:00 am Nov Philly Fed business index (6.8 frm 8.7)

             Friday;

                 10:00 am Leading economic indicators (Oct +0.6%)

There has been little movement in mortgage or 10 yr note rates for the last two weeks; regardless of the momentary and constantly conflicting news from Europe US long term rates are hitting key resistance levels (2.00%) on the 10 yr note and mortgage rates hanging in a 10 basis point yield range. The longer the rate markets find resistance at current levels the more concerned we are that rates may have found a bottom. Traders and those that seek safety against turmoil in Europe appear to resist buying when the bellwether 10 yr falls to 2.00%; although the rate has dipped below 2.00%, when it occurs it lasts no longer than a few hours before bouncing back.