Market Snapshot 10/14/2011

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The recent rally in the stock market is continuing today after a quiet day yesterday; at 9:00 the DJIA futures up 118. Not good for the bond and mortgage markets; the 10 yr at 9:00 -17/32 at 2.25% and mortgage prices off 4/32 (.12 bp), the MBS market is holding better than treasuries in the last few days, nevertheless MBSs are tied to the 10 yr. 

Sept retail sales at 8:30 were better than estimates; sales increased 1.1% with forecasts of +0.6%. Excluding auto sales up 0.6% on forecasts of +0.3%. August sales were originally reported unchanged, revised today to +0.3%. 

Also at 8:30 Sept import prices were up 0.3% while export prices increased 0.4%; both a little hotter than expected; yr/yr import prices +13.4% (mostly on oil) exports yr/yr +9.5%. 

The DJIA opened +106, the 10 yr -20/32 at 2.25% +7 bp and mortgage prices at 9:30 -5/32 (.15 bp).

At 9:55 the mid-month U. of Michigan consumer sentiment index was expected at 60.0 frm 59.4; was weaker at 57.5, the 12 month out expectation index at 37 frm 39. The weaker sentiment data stopped the stock market rally for a moment and interest rates found support; it is a long day however and the equity market still holds a a solid gain and rates are somewhat higher.

Standard & Poor’s yesterday cut Spain’s credit rating for the third time in three years and new data showed the eight largest U.S. money-market funds almost halved their lending to French banks last month. European officials are outlining a rescue plan that may include deeper investor losses on Greek bonds, higher bank capital levels and increased strength for bailouts. G-20 finance ministers are in Paris seeking ways to end Europe’s two-year sovereign debt crisis. The talk at the moment is that Europe will have all the details resolved before the G-20 leaders meet in a summit on Nov 3 and 4; it is still a moving target however. Greek bond holders are being forced to take a bigger haircut on the debt they hold, according reports German banks are bracing for a 60% write-down. Geithner on CNBC said any US help for Europe will come through the IMF, not directly from the US.

We still believe the 10 yr note will find support at 2.30%, it got to 2.27% Tuesday. It is a technical observation more than fundamental but with the Fed on record to keep long rates low it is not likely rates will head much higher. If 2.30% is broken there isn't much support until 2.50%.