Market Snapshot 9/14/2011

Prior to 8:30 the 10 yr note yield had increased to 2.03% +4 basis points from yesterday's close. Mortgage prices were down 3/32 (.09 bp). At 8:30 two data points, both weaker than expectations, improved treasuries and mortgages momentarily but it didn't last. August retail sales were expected to be up 0.2% overall and ex autos +0.3%; as reported sales were unchanged and ex autos +0.1%. July retail sales were revised to +0.3% frm +0.5%. August producer price index was expected down 0.1% overall and +0.2% when food and energy are removed, as reported PPI was unchanged and ex food and energy +0.1%. The weaker PPI supports the view that inflation isn't a problem. Yr/yr overall PPI +6.5%, ex food and energy +2.5%; at 2.5% it is at the Fed's target range. By 9:00 the 10 yr note yield was back to 2.02% and mortgage prices down 5/32 (.15 bp).

Sec Treasury Geithner on CNBC this morning saying Europe has the financial strength to avoid defaults in the countries that are on the edge with debt. He said he doesn't know whether there is the political will to do it. He said the obvious, that Europe's problems are causing a lack of confidence in the US. He encouraged Congress to pass the jobs bill offered up by the Administration. Europe's banks remain troubled; asked if the banks could pass the US bank stress tests, Geithner didn't answer pointing to the audience of funds managers saying they will be the judges. He admitted US growth isn't what the Administration had expected. His interview with Jim Cramer didn't move markets. His take away in the interview; he said there is no chance Europe will let their institutions fail.

Stocks rose for a second day in Europe, reversing earlier losses, on speculation China may still offer support for the region’s most-indebted nations. Greek Prime Minister George Papandreou will hold a conference call with German Chancellor Angela Merkel and French President Nicolas Sarkozy amid speculation Greece will default.

Pessimism about the economy has deepened and confidence in both U.S. political parties has fallen, with only 20 saying the country is on the right course. As little as 9% of Americans say they are confident the economy won’t slide into a recession, according to a Bloomberg National Poll.

Mortgage markets were choppy this morning; at 9:00 mortgage markets -6/32 (.18 bp), at 9:15 -4/32 (.12 bp) and at 9:30 +1/32 (.03 bp). The 10 yr at 9:00 -7/32 at 2.02%, at 9:30 -4/32 at 2.01%; 2.00% continues to be a heavy lift to keep it below that key psychological level. Yesterday the 10 yr note auction wasn't met with strong demand, it was mediocre based on demand. At 9:30 the DJIA opened +24, lower than where the index traded at 9:00 am.

At 10:00 July business inventories, expected up 0.5%, were up 0.4%; June revised to +0.4% frm 0.3%. Sales were up 0.7%, the inventory to sales ratio to 1.27 months from +1.28 months in June. Business inventory growth is very weak recently reflecting the economic outlook. No reaction to the report in treasuries; the 10 yr had climbed back to unchanged from -11/32 early this morning.

At 1:00 Treasury will auction $13B of 30 yr bonds completing $66B of borrowing this week. The 3 yr and 10 yr auctions were OK but demand didn't match recent auctions; the 30 today should get more interest.

As long as the 10 yr note doesn't climb above 2.10% the positive outlook will continue, a break above it would set up a run up to 2.30% and take mortgage rates up with it. The treasury market remains slightly overbought based on momentum readings while the US stock market is equally oversold. Next week the FOMC will hold a two day meeting, some traders looking for more Fed help, while others including some FOMC members don't believe more easing is necessary.