Whenever
you see a market trade in very wide intraday and interday ranges it implies
uncertainty and usually precedes a strong directional move; what direction must
be determined by which side has the upper hand in terms of tipping the balance.
The US stock market is currently in one of those patterns with wide interday
swings; last week the key stock indexes were as volatile we have seen in
months; at the end of the week the DJIA -166 points with daily ranges of 100+
points about every day last week. The 10 yr note rate and MBS prices swung back
and forth each day tracking the uncertain equity markets. The 10 yield last
week was down 4 bps to 2.54%, 30 yr MBS price not much improvement, +38 bp.
This
morning August personal income and spending; both right on estimates; income +0.3%,
spending +0.5%. The Yr/yr core personal consumption expenditures +1.5% well
below the 2.0% the Fed espouses as the ideal.
At
9:30 the
DJIA opened -159, NASDAQ -46, S%P -17. 10 yr at 9:30 2.49% -5 bp and 30 yr MBS
price +17 bps frm Friday’s close).
The
week has a lot of data points to think about with the Sept employment report the
elephant of the week on Friday. The present battle being waged in the stock
market between the diehard bulls and the increasing number of short term bears
looking for a major retracement will dominate daily trading. Sixeable swings in
the key equity market indexes will continue through the week on the data
points, news frm Europe, the trade in the dollar and any potential
geo-political events that may resurrect.
Europe
and Japan are on a plan to drive their respective currencies lower; in Europe and Japan
the lack of any inflation is forcing their central bankers to weaken their
currencies. The result of the decline in the euro and yen is one support for US
markets particularly our interest rate markets. The European Central Bank
president (Draghi) says the exchange rate isn’t a policy target, officials
aren’t secretive about their approval of the currency’s almost 10 percent
slide. The depreciation increases the cost of imports and boosts exporters’
competitiveness, aiding the effort to revive inflation. The Bank of Japan
officials retained a pledge to buy 60 trillion yen ($548 billion) to 70
trillion yen of assets a year to help spur inflation.
Treasuries
and MBSs also getting support this morning on weak stocks and strong protests
occurring in Hong Kong. Tens of thousands of pro-democracy protesters poured
back into the streets of Hong Kong, to press demands for free and open
elections and the resignation of Chief Executive Leung Chun-ying.
At
10:00 NAR reported pending home sales; forecasts were for a decline of 0.2%; as
reported -1.0% and yr/yr -2.2%. NAR blames the decline on investors now backing
out of the massive purchases over the last 18 months. Investors licked the
plate clean; now it’s back to individual purchases.
The
rest of the session today will focus all attention on how the stock indexes
trade;
eight out of the last 10 days the DJIA has closed 100 points frm the previous
day. A lower close helps the bond market, higher closes take some away. The
technicals on the 10 yr note are now bullish; not a runaway move but rate are
likely to continue to decline more frm current levels. Our outlook remains the
same; some lower rates but not back the low rates seen in late August unless
equity markets totally collapse, and we don’t expect that to occur. Note the
level of the stock indexes at 10:10 am below; already well off their opening
lows.
This
Week’s Calendar:
Monday,
8:30 am August personal income (+0.3%, spending +0.5%),
both as forecast
10:00 am NARs pending home sales (-0.2%) as reported
-1.0%
Tuesday,
9:00 am July Case/Shiller (20 city yr/yr price index
+7.4%)
9:45 am Sept Chicago PM index (62.0 frm 64.3 in Aug)
10:00 am Sept consumer confidence index (92.5 frm 92.4 in
Aug)
Wednesday,
7:00am weekly MBA mortgage applications
8:15 am Sept ADP private job growth (+200K)
10:00 am Sept ISM manufacturing index (58.0 frm 59.0 in
Aug)
-Aug construction spending (+0.5%, +1.8% in July)
-No time Sept auto and truck sales (16.8 mil frm 17.5 mil
in Aug)
Thursday,
8:30 am weekly jobless claims (+4K to 297K)
10:00 am Aug factory orders (-9.3%m July +10.5%)
Friday,
8:30 am Sept employment data (Unemployment 6.1% unch;
non-farm jobs +215K, non-farm private jobs 215K; avg. hrly. earnings +0.2%)
-Aug trade deficit (-$40.9B; July -$40.5B)
10:00 am Sept ISM service sector index (58.8 frm 59.6 in
Aug)
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