his week will continue to be on what happens in Europe with the debt issues. It is not going to fall off the front page for our markets for many months; on Friday the leaders in Europe are schedoed to meet. Markets are hoping there will be some kind of plan that emerges to deal with the debts of Spain and Italy but after two years of trying it is a leap of faith to expect anything substantive coming from the meeting. Not much in the way of key economic reading this week; Monday the November ISM Index and Weekly Jobless Claims on Friday are the only serious data points
This morning Europe and U.S. Stock markets are trading better;the U.S. bond and mortgage markets are weaker. At 900am the 10-Year Note was -20/32 at 2.10% and mortgage prices were -6/32 (-.18 bps). News out of Europe contunues to be indecisive with the summit meeting on Friday of Europes’ leaders. Germany’s Merkel is due to meet with French President Nicolas Sarkozy in Paris today to prepare for a December 9th European summit. According to news early this morning the German government won’t stand in the way of Bundesbank help to fight the debt crisis by means of loans channeled throught the International Monetay Fund (IMF). Starting the week there is increased optimism in markets that Eruope will actually work out something positivve to fend off defaults in Spain and Italy. Tim Geithner is in Europe cajoling leaders to come up with a plan quickly; hard to handicap his influence. If there is acutally something of substance from the EU this week or over next weekend, U.S. interest rates will increase; no more safety moves into treasuries and the view that a plan in Europe will improve its and the U.S. economic outlook.
At 930am the Dow Jones Industrial Average (DJIA) opened up -100, the 10-Year Note was -20/32 at 2.10% (-7 bps) and mortgage prices were -6/32 (.18 bps) from Friday’s close.
Two economic reports at 1000am; November ISM Index expected at 53.4 from 52.9 was weaker at 52.0; New Orders component at 53.0 from 52.4; Employment were 48.9 from 53.3 and Prices Paid were 62.5 from 57.1. A little improvement in the bond market on the weaker data but not much; the stock market didn’t react much to the report. The employment component fell under 50; an indication of contraction. Also at 1000am October Factory Orders, expected down 0.4% hit right on at -0.4%; October Durable Goods Orders originally reported down 0.7% were revised to 0.05%.
Technically and fundamentally the U.S. interest rate markets remain in narrow trading ranges; the 10-Year Note still unable to hold under 2.00% but does find support anytime the yield climbs to 2.12% as it did last week. mortgage rates and prices trading in even narrower ranges; the price on the 3.5 FNMA Coupon has held in a 50 basis point (bps) range now for almost a month. The week will continue to work off equity markets; stock indexes higher, bond and mortgages prices lower. We remain skeptical that U.S. interest rates will decline much from these levels. The larger outlook is that rates will begin to slowly increase from present levels.
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