This is Employment Report week, always a big one for the markets. ADP will report its estimate for private jobs in May on Thursday then the BLS reports the “official” report on Friday. In the meantime Europe still dominates overall. Spain is taking the spotlight on concerns Spanish banks are teetering on the edge and need capital infusion in some manner in order to remain solvent. It only gets worse in Europe, Greece is increasingly viewed as leaving the EU with the deciding vote in about two weeks (June 17th).
How low can U.S. interest rates fall? Based on comparisons of some other AAA sovereign yields the U.S. 10-Year Note is cheap, trading at 1.73% this morning compared to Germany’s 10-Year Bund at 1.346%; the spread .385 bps at 930am. Five years and counting, the U.S. budget deficits have exceeded $1.0T with U.S. debt downgraded by rating agencies and no longer AAA. One of the key drivers for U.S. interest rates is there are better yields here than in Germany, Australia and other better controlled countries. The extra yield investors receive for holding Treasuries is an added benefit for investors seeking a haven from Europe’s sovereign debt turmoil. In the U.S. there is absolutely no incentive for politicians to focus on budgets. Neither Democrats or republicans (no matter what comes out of their mouths), have no interest in actually dealing with excess spending regardless of what you may here from any of them.
Home values in 20 U.S. cities fell in the 12 months ended March at the slowest pace in more than a year as lower borrowing costs and an improving job market gave sales a boost. The S&P/Case-Shiller index of property values fell 2.6% from a year earlier after a 3.5% drop in February.
At 930am the DJIA opened up +83, the NASDAQ up +25; the 10-Year Note up +3/32 at 1.73% (-1 bps) and mortgage prices that were slightly better early were unchanged.
At 1000am the May Consumer Confidence Index from the Conference Board, expected at 69.4, was a lot weaker at 64.9 from revised April figures at 68.7 from 69.2. Expectations at 77.6 from 80.4, the present situation at 45.9 from 51.2. The rep[ort on consumers is a lot weaker than what the University of Michigan Consumer Sentiment Index reported last week. The reaction wasn’t much as the 10-Year Note moved up 2/32 in price but the stock market ignored the report.
There probably won’t be much movement in the financial markets through the rest of the day,at least until 300pm for the stock market. The final hour in stock trading is generally volatile. The interest rate markets are not likely to improve a whole lot this week until the Employment Report is released on Friday or a significant decline on German 10-Year Bunds occurs. Technically the U.S. 10-Year Note is going to need a large push to move and stay below 1.70%. mortgage rates are likely to be unchanged through most of this four day week.
