Rate markets a little better this morning after heavy selling yesterday took mortgage prices down 41/32 (128 bp). The see saw continues in the stock market, down one day hard, up strong the next day; uncertainty still rules markets. Yesterday the stock indexes jumped 423 (DJIA) after dumping 520 on Wednesday; this morning the key indexes are actually better. Can we have two up days in a row? We will have to wait until the close to see, the volatility remains extreme and not possible to predict where markets will trade the next five minutes let alone for the next six hours.
At 8:30 July retail sales were up 0.5% overall and up 0.5% when auto sales are extracted; a little better than forecasts on the ex autos sales. June retail sales, originally reported up a very weak 0.1% were revised to +0.3%. There was no noticeable reaction to it. Sales in July were the best in four months suggesting consumers, while conservative, are still buying.
At 9:30 the DJIA opened up 90, the 10 yr note at 2.28% -5 bp and mortgage prices +16/32 (.50 bp) frm yesterday's close.
At 9:55 the U. of Michigan mid-month consumer sentiment index, expected at 63.0 frm 63.7 at the end of July, tumbled to 54.9, the lowest index read since May 1980. The current conditions component fell to 69.3 frm 75.8 and the 12 month outlook index fell to 40 frm 55. A very weak report that has pushed mortgage prices higher from 9:30 and took some wind out of the stock indexes although still holding gains. Not really much of surprise given the current economic outlook and consumer anger over Was
At 10:00 June business inventories expected up 0.6%, were up 0.3%; sales up 0.4%leaving a 1.28 month supply unchanged from May.
This morning France reported its quarterly GDP at zero, no growth. More evidence that Europe's economies are softening just as we have here. European industrial production unexpectedly fell in June, it fell 0.7% from May. European economic confidence weakened in July and manufacturing growth slowed, based on a survey of purchasing managers. Euro-region growth probably weakened in the second quarter from 0.8% in the previous three months, European Central Bank President Jean-Claude Trichet said on Aug. 4. In the year, the economy may expand about 1.9% before cooling to 1.7% in 2012.
Turkey, Greece and South Korea trying to stem the heavy selling in equity markets have banned short sales. The take away is that by doing so the volatility will lessen and remove some of the panic. Likely the bans have helped our market in early trade this morning. Banning shot sales has never really worked before where it has been implemented, but the initial reaction generally does slow it down. In the longer perspective the markets will go where investors want it to go, based on underlying fundamentals.
Renewed talk this morning that most economists are now expecting another QE move from the Fed. If the Fed does another easing move it isn't likely to increase employment anytime soon. The advantage, and possibly the logic in another easing, is that the Fed could drive long term rates even lower and push mortgage rates down to levels never seen before. Doing so would likely keep re-financing going, lowering debt service for consumers thus increasing consumer spending. Taking it further, if consumers increase spending the hope is that businesses will increase hiring. From my perspective, driving rates lower won't meet the expectations; homeowners will take advantage of it but won't open purses for much increase in discretionary spending. Until consumer confidence increases about our leadership in this country, consumers rightly will continue to be cautious. New polls out show citizens have very little confidence in Washington, Republicans, Democrats and Pres Obama. After the embarrassing performance over the debt ceiling America is fed up. Any QE move from the Fed will likely be announced on August 26th at Jackson Hole.
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