Market Snapshot August 23rd

Treasuries and mortgages opened a little weaker this morning but crawled back to about unchanged at 9:00; the DJIA trade prior to the 9:30 open up 49. Gold down early this morning. This week is about waiting until Friday when Bernanke will speak at the opening of the Fed's annual economic conference. Many in the markets are looking for another stimulus from the Fed; we are not sure what the Fed chairman will decide but we are certain whatever the Fed does won't directly add jobs, increase consumer spending or help the housing industry. Doing an easing would likely push long term rates down more, but won't increase home buying. What it would do is add more emphasis to drive more investors into the stock market, looking for some meager returns. QE 2 did nothing to improve the economy, printing more money doesn't seem to make much sense.

In Europe the debt crisis is driving consumer sentiment down, fearing economic decline. German investor confidence fell more than economists forecast to the lowest in more than 2 1/2 years in August. The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months in advance, plunged to minus 37.6 from minus 15.1 in July. That’s the lowest since December 2008 and the biggest drop since July 2006. (Bloomberg)

This week should see improvement in the equity markets ahead of Friday's Bernanke speech; traders short equities likely will square up by Friday. Interest rates are likely to creep up a little, but not much, also on Bernanke expectations. As noted, the only thing that more Fed buying will do is push rates lower, firms that make money driving investors into stocks are leading the idea of another easing move from the Fed.

At 9:30 the DJIA opened +67, the 10 yr note -7/32 at 2.13% while mortgage prices were +1/32 (.03 bp). Prior to 9:30 mortgage prices were trading down as much as 8/32 (.25 bp).

The economic data today; at 10:00 July new home sales were expected down 0.7%, sales as reported sales down 0.7% to 298K annualized; the median sales price $222K, a six month supply based on sales. Yr/yr the median price is up 4.7%. The August Richmond Fed manufacturing index plunged to -10 frm -1 in July; the services index fell to -1 frm +7 in July. There was not much reaction to two reports, the stock market actually gained while the rate markets didn't move on the data. Mortgage prices are better at 10:00 than earlier this morning, at 10:05 up 6/32 (.18 bp) on the day.

At 1:00 this afternoon Treasury will sell $35B of 2 yr notes, the first of three auctions this week. The current rate on the 2 yr note is a whopping 0.22%, the Fed funds rate is about half that; the one month T-bill gets you 0.005%. It is little wonder with these zero interest rates that investors are being driven to gold and other precious metals and commodities. Generally speaking, there isn't much opportunity to earn a return these days.

Today will be no different than most recently; if the stock market gets traction interest rate markets will suffer a little, if stock indexes fall the bond and mortgage markets will improve. The present situation is fluid; lenders still conservative on their pricing given the uncertainty about what loans will actually close at the rate committed. Already this morning the mortgage market has exhibited volatility; thin trading is causing mortgage prices to swing from -8/32 to +4/32 a few times in the first two hours of trading.