Market Snapshot 11/3/2011

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Early trade this morning, treasuries and mortgages weaker; at 9:00 the 10 yr -20/32 to 2.06% +6 bp and mortgage prices down 11/32 (.34 bp), the DJIA futures traded +153.

News out of Europe; rumors that Greece Prime Minister Papandreou is about to resign but no one is taking it seriously as most of the rumors are coming from "anonymous sources". Greece has about as many cabinet members as we have senators (70), everyone there has an agenda; markets are becoming de-sensitized over rumors after two years of no progress in the debt issues dragging Europe down. Papandreou shocked officials yesterday when he called for a referendum vote from Greeks on whether or not to accept the austerity provisions demanded from the ECB, EU, and IMF in order to get the funds to avoid defaulting on their debt.

More news from Europe; the ECB cut its base lending rate by 25 bp to 1.25% after increasing rates 50 basis points earlier this year. The unexpected cut added to the increase in stock index futures and in turn pushed the 10 yr higher in rate. The move was unexpected but Spain and Italy saw their interest rates rise yesterday as some Euro officials are now speculating that Greece will default and leave the EU. France and Germany saying they would treat Greece’s surprise referendum on a second bailout as a vote on its euro membership. Greece's potential defaults and exit from the EU shouldn't be a complete surprise; it is a huge hill to climb for Europe to avoid more turmoil, next up will be Spain and Italy whose sovereign debts make Greece look like small potatoes.

Economic data at 8:30 this morning; weekly jobless claims were down 9K to 397K, last week's claims revised from 402K to 406K; it has been since 9/21 that claims are below the 400K level that economists see as pivotal. The estimate was for claims to be at 402K so not much of a differential. Q3 worker productivity, expected +2.5%, came at +3.1%; Q3 unit labor costs were expected -0.7% but fell 2.4%.

At 9:30 the DJIA opened +126, the 10 yr note -24/32 to 2.07% +7 bp and mortgage prices at 9:30 -13/32 (.41 bp).

Next up in this morning's time line; at 10:00 Oct ISM services sector index expected at 53.5 frm 53.0; it declined to 52.9. The components; new orders index 52.4 frm 56.5, employment at 53.3 frm 48.7 and prices at 57.1 frm 62.9. The report put pressure on stock indexes, after opening up 126 and increasing to +160 the DJIA dropped back to unchanged (see below).

Also at 10:00, Sept factory orders were thought to be -0.2%; as reported orders increased 0/1%.

Tomorrow morning its the ever volatile employment report from the BLS, the present estimate is for non-farm jobs to have increased 90K and non-farm private jobs +120K, the unemployment rate unchanged at 9.1%. The increases in non-farm jobs and private jobs is lower than in Sept (103K and 137K respectively). The norm for the employment data each month is that the data usually comes in well off the estimates sending markets into wild volatility.

The bellwether 10 yr note continues to find resistance when it falls to 2.00%, as we have noted numerous times, under 2.00% is difficult to maintain. The 10 has been as low as 1.70% twice, each time it didn't hold long. Mortgage interest rates also facing resistance at present levels. That said, these are very unusual times and anything is possible. Europe is going to lower its economic forecasts as the debt issues continue unresolved; so far the US equity markets are not reacting to the weaker euro outlook. The US rate markets continue to be driven by equity markets; stocks rally and it outs pressure on the bond and mortgage markets; equities decline and the bond and mortgage markets find support.