Headlines this morning, a debt ceiling deal was cobbled together over the weekend. The plan calls for cuts of $2.2T in spending and the debt ceiling increased $2.1T, enough to get past the 2012 elections. Leaders expect the bill will be passed by both the full House and Senate. The bond market so far isn't too excited about the compromise, early this morning treasuries and mortgages have been hanging around unchanged from the strong rally Friday, the stock indexes in the futures markets prior to the 9:30 open were stronger on the reaction to the debt ceiling increase.
“The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said in an appearance in the White House briefing room last night as. “This compromise does make a serious down payment on the deficit-reduction we need. Most importantly, it will allow us to avoid default.” The House is expected to vote on the bill sometime today, markets will focus on how the rank and file members accept the compromise with the tea party freshmen in the House key to getting it passed. After it passes the House the Senate will likely vote later today or this evening. Both sides of the prolonged wrangling are finding fault with what was worked.
What will the rating agencies do with the compromise once it has passed the Congress? Questions remain whether rating agencies will cut US ratings. The rating agencies will not lower the US credit rating in our opinion; they were completely out to lunch on the sub prime mortgage crisis; lets hope they don't mess up again. German bond yields were near the lowest in over two weeks amid concern a compromise deal on the U.S. debt ceiling won’t prevent a credit-rating downgrade of the world’s largest economy.
At 9:30 the DJIA opened +125, the 10 yr note -6/32 2.81% +1.5%; mortgage prices unchanged from Friday.
Data at 10:00; the July ISM manufacturing index, expected at 54.0 frm 55.3 in June, it took a huge dive to 50.9, the lowest index reading since July 2009 and adds to the confirmation that the economy is slipping quickly. The reaction sent the 10 yr note to 2.75% -4 bp and pushed mortgage prices +11/32 (.34 bp) on the session, up 12/32 (.37 bp) frm 9:30. The report sent the key stock indexes down hard, from +50 on the DJIA to -92 within three minutes of the 10:00 release. (see below for 10:10 prices)
June construction spending at 10:00, forecast unchanged from May, as reported up 0.2%.
This is employment week; Friday July employment data, the early estimates are for 84K non-farm jobs and 100K non-farm private jobs with the unemployment rate unchanged at 9.2%.
This Week's Economic Calendar:
Today 10:00 am July ISM manufacturing index
June construction spending
Tuesday;
8:30 am June personal income and spending (income +0.1%, spending +0.1%)
2:15 July auto and truck sales (N/A)
Wednesday;
7:00 am weekly MBA mortgage applications (N/A)
8:15 am ADP July non-farm private jobs estimate (+100K)
10:00 am June factory orders (-1.0%)
July ISM services sector index (53.7 frm 53.3)
Thursday;
8:30 am weekly jobless claims (+7K to 405K)
Friday;
8:30 am July unemployment (9.2%, non-farm jobs +84K, non-farm private jobs +100K)
3:00 pm June consumer credit (+$5.0B)
Although all focus has been on the debt default debates in Washington, now that it appears they have once again dodged another political bullet it is time to turn back to the economy. The economic outlook is becoming less optimistic with each key economic report. Friday Q2 advance GDP report was much weaker than thought, up just 1.3% with most looking for +1.9%; Q1 GDP was revised from +1.9% to just +0.4% a huge slap in the face of the better economic outlook.
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