Rates Drop

Yesterday the stock indexes fell; the DJIA -266 and NASDAQ -78. Some of the selling was a reaction to the Boston bombing, however that didn’t happen until 3:00. Prior to the shock the stock market was under strong selling pressure, frm the time the bombs exploded the DJIA was down over 170 points. The 10 yr note fell to 1.69%, down 4 bp and 30 yr MBSs +16 bps. This morning at 8:30 the US stock indexes trading in the futures markets were suggesting the DJIA would open up 120 points higher. No follow-through this morning; looking for the correction in stocks is about as rewarding as trying to find the proverbial needle. Yesterday it was about the decline in growth in China on the weaker than expected Q1 GDP, the Empire State manufacturing data softer than expected, and the April NAHB housing market index that was thought to have increased from March but fell 2 points to 42 frm 44 (50 is the divide between positive and weaker). The fall in the indexes yesterday was the biggest decline in five months. This morning at 8:30 March CPI was down 0.2% overall; the core (ex food and energy) up 0.1%; estimates were for the index were unchanged overall and +0.2% on the core. Inflation is always a talking point but these days, and for the last three years inflation is completely absent; in fact the new concern is possible deflation resulting from China’s slowdown. Since the Fed began the QEs three years ago there have been fears it would trigger inflation but a still sluggish global economy has kept prices frm increasing. Yr/yr overall CPI +1.5%, core yr/yr +1.94%. The more critical data at 8:30; March housing starts and permits. Starts were estimated up 1.4%, starts jumped 7.0% to 1.036 mil units, the gain mostly in multi-family starts that were the strongest in seven years, estimates were for starts at 930K units (annualized). Building permits a little concerning though, permits dropped 3.9% against estimates of  a decline of 0.5%. At 9:15 March industrial production was expected +0.2%; it doubled to 0.4% and Feb production, originally +0.7% was revised to +1.1%. March capacity utilization (factory use) was expected at 78.3% unchanged from Feb, use increased slightly to 78.5%. At 9:30 the DJIA opened +100, NASDAQ +24, S&P +10. The 10 yr note 1.73% +4 bp and 30 year MBSs -16 bp frm yesterday’s close. The IMF out today lowering its outlook for global growth frm +3.5% in January to +3.3% now. IMF urged European policy makers to use “aggressive” monetary policy as a second year of contraction leaves the euro area’s recovery lagging behind the rest of the world. The IMF report describes a “three-speed” recovery led by emerging markets including China, with the U.S. forging ahead and Europe trailing after fighting a debt crisis that has forced bailouts of five countries in the region. Beside the stock market volatility yesterday, gold was beat down hard, -$160 by 5:00 pm and last Friday down $78.00; increased views that inflation isn’t likely to increase and the sell recommendation last week from Goldman/Sachs has driven the price from $1570 four weeks ago to the $1350 level yesterday. This morning gold up $33.00. Crude oil also saw strong selling yesterday, down $3.00 to $88.50 at 4:00 yesterday; the price is higher today. Yesterday’s trading in stocks, gold and oil started the week with an increase in volatility, this morning it is evident with the markets that were hit hard yesterday are snapping back with reversals in the markets. No additional economic data today but there are three Fed officials scheduled to speak; Elizabeth Duke at 12:00 pm, Narayana Kocherlakota at 1:00 and at 3:00 Janet Yellen, the vice chair of the Fed. Technically, the 10 yr note failed yesterday to move below 1.69%, the third time in four days that buying ended when the yield fell to 1.69%. A little concerning that the 10 could not garner buying yesterday with stocks collapsing, gold falling and crude lower. Even the increased concerns the economies of the world are slowing hasn’t pushed the yield lower. All of our models still remain bullish; the rest of this week though will likely be more volatile after yesterday’s market actions.   Globalhomefinance.com  Let us help you with your home loan needs.