Treasuries and mortgages opened weaker this morning, at 830am Weekly Jobless Claims that were expected to be down 2k jumped 6k to 420k and last week’s claims were revised higher to 396k from 393k. Back above what traders consider pivotal 400k. Prior to the Weekly Jobless Claims Report the 10-Year Note traded at 2.13% up 5 bps from yesterday’s close and breaking its key short-term moving averages. mortgages still holding well against the rise in treausry rates but still a little weaker at 900am, down 6/32 (.18 bps) from yesterday’s close.
Markets still thinking about what was behind the unexpected coordinated central bank’s move yesterday to increase liquidity in the currency markets. Some talk that a bank in Europe was on the edge of failing but who really knows these days. Whether there is any truth in it doesn’t matter; banks in Europe are drowning in debt from Greece, Italy, Spain and a few other countries and are on the edge of failure.
Spain and France borrowing costs declined today after the lowered curecny swap rate announcement yesterday. Is Europe getting closer to some kind of resolution of the debt mess that will save its banks? Hard to be sure, the debts are so huge that in the end it will take many years to resolve it. Next week leaders of the EU will meet (Dec. 9th), if they don’t have a workable solution or plan that is credible markets are going to blow up, stocks will likely drop globally and safety to U.S. treasuries will increase once more. That said, although we have no insight other than it has to end soon, markets seem to be expecteing something positive next week. U.S. treasury rates are increasing, the safety trade into U.S. treasuries ran out of gas a few weeks ago, and the action by the central banks yesterday suggest Europe has to do something now; further delays will bring the house of cards down hard. Europe is at the end of the road of arguments and differences of opinion; after two years either Europe’s banks will begin to fail or there will be some kind of plan to take it back from the edge…there is no time left for fiddling, time is up!
A lot of talk these days that the U.S. economy is improving, most of it comes from those that have a vested interest in touting any bullish view. The economy is stagnant at best; like the three bears not too hot but not too cool either. Every data point recently is taken as the final word, and every negative data point these days is largely discounted. The reality is, with Europe teetering on a serious crisis and there is actually no real strong consensus either way. The proof is obvious; huge swings in stock indexes but in the wider perspective no directional change. We are all in a state of mass uncertainty and until Europe can find any solution to their debt crisis nothing will change. Wrap a big red Christmas ribbon around it; with the housing market in depression and unemployment not likely to decline much, the outlook for the U.S. is not good, not bad either
At 930am the DJIA opened -27, the 10-Year Note yeild at 2.12% (-13/32) and mortgage prices down 7/32 ).22 bps).
At 1000am the November ISM Manufacturing Index was expected at 51.5 from 50.8; as reported it jumped to 52.7; New Orders at 56.7 from 52.4; Prices Paid at 45.0 from 41.0; and Employment at 51.8 from 53.5. Any index above 50.0 is considered expansion.
Also at 1000am October Construction Spending; expected up 0.2%, jumped 0.8%.
The two 1000am data points turned the equity markets up from being lower; the 10-Year Note rate increased to 2.13%; mortgage prices slipped a few basis points.
Attempting to read the tea leaves of the fundamentals these days is impossible with the issues that bear on the markets. Looking purely at the technicals thoughis somewhat cleaner; the 10-Year Treasury yield is increasing and breaking support levels, mortgage prices locked in a 50 basis point price range for the last three weeks. Technicals ignore all the talk and measure what is actually happening with each market; how much buying and selling…what money is doing, not what CNBC or Bloomberg guest have to say. Based on whatmoney is doing today, money is leaving treasury markets and in turn have capped the decline in mortgage rates. As noted though, uncertainty over Europe keeps volatility and uncertainty at the very high levels.
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