Prior to 8:30 the bond and mortgage markets were slightly weaker in price with stock indexes better. At 8:30 more not so good news, the Q3 preliminary GDP data was weaker than expected and weaker than last month’s advance report. Q3 GDP was revised from +2.5% to +2.0% with forecasts of +2.3% to +2.5%; consumer spending +2.3% frm +2.4%, business investment +14.8% frm +16.3%, all sales +3.6% unchanged from the advance report. The reaction turned the 10-Year Note from -5/32 to +6/32 at 8:40, mortgage prices frm -3/32 to =2/32 and the stock indexes slightly lower.
The revision lower to Q3 GDP sets up a redo of the estimates for Q4 which had been talked at 3.0%; that is unlikely now. The weaker economy won’t sit well with equity markets, the key indexes opening weaker this morning after the DJIA closed down 248 points yesterday.
In Europe it’s still the same, no positive news. Germany is the key and so far it will not step up and take command, can’t blame it though as every EU country in the final analysis will look inward first. Germany rejected calls from allies and investors to do more to counter market turmoil as Spain’s financing costs surged and pressure mounted on Greek political leaders to submit written commitments to austerity measures. Bond yields in France, Spain and Italy climbed as the absence of progress toward enacting a month-old comprehensive crisis-fighting package; Spain’s leaders saying the country cannot afford 7.0% interest rates.
One more failure by elected officials to do the country’s business. Nothing from the Super Committee. The committee had no chance to begin with as members of both parties were pleased to just let it go by. It is all about elections for Congress and the Administration; failing to cut spending by $1.2T simply lets spending cuts and taxes die for the next year. The cuts were to begin 2013 not next year; by 2013 there may be an entirely different political make up in Congress so any real attempt to deal with spending cuts didn’t matter much with the Super Dud Committee.
At 9:30 the DJIA opened down 50, the 10 yr at 1.96% unch and mortgage prices +1/32 (.03 bp).
Thanksgiving week is short with most investors ending the week tomorrow (Wednesday), although the U.S. markets will trade in shortened sessions. Volume this week in trading activity is thin and possibly affecting the wide swings in equities, the bond market is holding under 2.00% on the 10-Year Note but isn’t showing much strength given the soft equity markets and the troubles in Europe. Safe haven buying of U.S. treasuries is waning recently as more investors simply take to the sidelines; not buying equities, gold or interest rates. Gold today is opening better but has fallen over $100.00 on the past week.
At 1:00 Treasury will borrow $35B of 5-Year Notes in its auction; yesterday’s 2-Year Note found solid bidding. At 2:00 the Fed will release the minutes of the 11/2 FOMC meeting.
