Market Snapshot 1/13/2012

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Treasuries started better this morning, then got a little additional boost at 8:30 on the release of Dec import and export prices. Import prices declined 0.1% and export prices -0.5%; the declines will have a slight negative impact on Q4 GDP. Yr/yr import prices +8.5%, yr/yr export prices +3.6%. Also at 8:30 Nov US international trade deficit was expected -$44.3B, as reported -$47.8B.Stok indexes were trading lower prior to 8:30 then fell a little more on the data.

The U.S. import bill was driven by demand for higher-priced crude oil at the same time American companies tempered orders for consumer goods on concern household spending will cool early this year. Exports from the U.S. declined to a four-month low, depressed by a drop in shipments to Europe. The U.S. trade deficit widened more than forecast in November as American exports declined and companies stepped up imports of crude oil and automobiles. The gap expanded 10.4 percent to $47.8 billion, the widest since June, from a $43.3 billion shortfall in October, Commerce Department figures showed today in Washington. The deficit was larger than any of the estimates.

At 9:00 30 yr MBSs were +6/32 (.18 bp), stock indexes pointing to a weaker open. At 9:30 the DJIA opened -100, the 10 yr note +17/32 at 1.86% and mortgage prices +7/32 (.22 bp) on 30s and +4/32 (.12 bp) on 15s.

About 9:00 this morning some of the wires were reporting S&P is about to lower the credit rating for countries in Europe. While not unexpected, if the reports are true the downgrades are coming sooner than what many were expecting. The news added additional pressure to stock indexes already weaker.

At 9:55 the U. of Michigan consumer sentiment index was expected at 71.5 frm 69.9 at the end of Dec; the index jumped to 74.0; current conditions increased to 82.6 frm 79.6, expectations increased to 68.4 frm 63.6, and the 12 month out index increased to 79.0 frm 70.0. It is the mid-month survey and although stronger than expected there has been no reaction to the report.

Trade today will likely be more defensive with markets closed on Monday for MLK. Generally a three day weekend with other global economies open increases safety, likely the bond and mortgage markets will hold strong with investors and traders increasing long positions. US equity markets will be under pressure, also due to the long weekend.

The improvement in the 10 yr note this morning, breaking below 1.90% increases the bullish technical bias somewhat. Until this morning the bond market, while bullish was losing momentum, that it pushed below 1.90% projects a possible test of the recent low at 1.80% achieved on Dec 19^th. There is always a caveat however, the strength today may be somewhat exaggerated due to the long weekend. In the mortgage world, be careful with your lenders as they begin to add in the increases in rates that Congress dictated to the agencies to finance the 2.0% social security cut extension. Many lenders have put on time tables, others it’s a crap shoot as to what day the hammer will fall. Even with treasuries doing well, mortgage interest rates will increase with the increased G fees mandated.