Market Snapshot September 13th

A quiet but little weaker start this morning; the 10 yr-2/32 and mortgage prices -.06 bp at 9:00. At 8:30 August import prices declined -0.4% against forecasts of -0.8%; export prices +0.5% against unchanged expected; no reaction to the data as usual. Today has no real data to look at; at 1:00 Treasury will auction $21B of 10 yr notes re-opening the 10 yr issued in August. Yesterday's $32B of 3 yr notes was mediocre, not bad but no strong demand for 3 yr yield at 0.334%. At 2:00 this afternoon Treasury will report the August budget deficit at -$132B.

Markets in the US still being driven by lack of events with Europe's debt mess. In early Europe activity this morning there was a report that France and Germany were about to make a statement on Greece's debt, later the French government said that wasn't the case, there is no announcement. Europe's stocks turned lower. German Chancellor Merkel said overnight she won’t let Greece go into an “uncontrolled insolvency” because of the risk of contagion for other countries. Italy sold 3.9 billion euros ($5.3B) of a new five-year benchmark bond as borrowing costs rose and demand fell. A government official said yesterday the nation held talks with China about potential investments in the euro area’s third- largest economy. The rate was 5.6%, compared with 4.93% at the previous auction and demand was 1.28 times the amount on offer, down from 1.93 times earlier.

The National Federation of Independent Business’s optimism index decreased to 88.1, the weakest reading since July 2010 and the sixth-consecutive decline, from 89.9 in July. The number of small-business owners saying they expected the economy will improve six months from now fell to the lowest level since 1980. Six of the index’s 10 components decreased. The gauge of expectations for better business conditions six months from now led the decline, falling 11 points to a net minus 26 percent in August. The drop brought business assessment of the economy to the lowest level since the second quarter of 1980, when the measure fell to minus 37, according to Dunkelberg. Based on the NFIB report today Obama's jobs bill isn't going to light a fire under small businesses where most all new jobs come from.

Obama's jobs bill, if passed, does not appear to add permanent jobs to the work force or encourage businesses to hire workers. Most of the jobs that would be created in his plan would be teachers, state union workers and construction workers for the "shovel ready" jobs. Shovel ready didn't add many jobs with the first stimulus and likely won't do so this time; as for teachers, a good idea but after the initial subsidy to pay them, who will continue to pay their salaries? Based on the markets' reactions since last Thursday evening, there isn't much enthusiasm for his plan so far.

At 9:30 the DJIA opened -10, the 10 yr note ahead of this afternoon's auction -4/32 at 1.96% +1 bp and mortgage prices -2/32 (.06 bp) on 30s, -6/32 (.18 bp) on FHAs.

By 10:00 the rate markets were weaker than when most lenders priced; the 10 yr note yield up to 1.98% and mortgage prices -4/32 (.12 bp). The stock market is essentially unchanged; nothing of substance out of Europe debt crisis, the main issue driving US equities and bond markets. This afternoon Treasury will sell $21B of 10 yr notes, likely will keep treasuries from improving much unless the stock market declines. Technically the bond market is approaching overbought readings on the momentum oscillators. No reason to become bearish in the bond market unless Europe finds a way out of the current debt crisis.