Market Snapshot 11/15/2011

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Three economic reports at 8:30 this morning; Oct retail sales better than estimates, +0.5% overall and +0.6% ex auto sales, estimates were +0.4% and +0.2% respectively. Nov Empire State manufacturing index expected -0.8 frm -8.48 in Oct was +0.61; new orders component -2.07 frm +0.16, employment at -3.66 frm +3.77 and prices pd at 18.29 frm 22.47; any index lower than zero is considered contraction. The headline was better but the components didn't look so good with employment and new orders weaker. Oct PPI expected -0.2% overall and ex food and energy +0.1%; as reported the overall was -0.3% and the core unch. Yr/yr overall PPI +5.9% while the core yr/yr +2.8%. At the wholesale level inflation is rather tame.

Prior to the 8:30 data the 10 yr note once again traded down to 2.00%, once again it hasn't held as 2.00% is a brick wall for long term rates. Although the 1 has moved under 2.00% it hasn't been able to sustain it. Mortgage prices prior to 8:30 up 7/32 (.22 bp), at 9:00 +5/32 (.15 bp).

In Europe the economy continued to muddle along. The EU’s gross domestic product increased 0.2% from the previous three months, when it rose at the same pace, according to EU data. The euro weakened as the cost of insuring French bonds climbed to a record and Spanish yields rose at an auction.  Mario Monti, Italy’s premier-in-waiting, faced political resistance on forming a Cabinet during talks in Rome yesterday. Monti wants a technocratic government without politicians, politicians in Italy refusing to go along.  French and Italian interest rates increased today. Germany and Britain exchanging words over Britain's refusal to go along with a tax on financial transactions. 25% of Britain's lawmakers are calling for a referendum vote to exit the EU. Germany has been at the forefront of calls for a European transaction tax, a levy Britain is only willing to countenance if the U.S. and Asian nations join in to prevent financial services from deserting London’s financial center. The European Commission has proposed a plan that it says would raise 57 billion euros ($77B) a year.

The DJIA opened -12 points at 9:30, the 10 yr note +4/32 to 2.03% -1 bp and mortgage prices at 9:30 +3/32 (.09 bp).

At 10:00 Sept business inventories expected +0.1% were reported unchanged.

Chicago Fed Pres Evens out this morning advocating more easing from the Fed to lower the persistent high unemployment rate. Evens was the lone dissenter at the last FOMC meeting (11/2) when the FOMC decided to not announce anymore easing. Another Fed easing however won't reduce unemployment; all the easing so far hasn't done anything to lower unemployment.

We continue our concern that interest rates are running out of steam at the present levels. The 10 yr note hasn't been able to move below 2.00% and hold it; recent turmoil in Europe that isn't lessening but becoming worse hasn't generated the kind of safe haven moves into treasuries the last few weeks. Mortgage rates also finding resistance at present prices and yields. Although buying has slowed there isn't much to suggest interest rates should increase either; the 10 yr is comfortable between 2.10% and 2.00% while mortgage rates are stable at present rates. The equity market in the US and the chaos in Europe are the issues; this morning so far a good example, the 10 yr was holding positive with a gain that had the yield at 2.00% when the stock indexes were weaker. At 9:45 the key indexes went positive and took mortgages and the 10 yr back to unchanged.