[jgillisp]

Monday July 30, 2007 4:30 PM


After the serious stock market thumping last week (DJIA -585 and S&P -75, the biggest S&P dump in 5 yrs), the equity markets got a boost today. Interest rates rallied hard last week with the 10-yr note yield down -19 basis points on safe haven buying tracing the action in stocks. Today the stock market saw short-covering and a splash of bargain hunting and in turn the bond and mortgage markets reversed and yields increased 4 basis points. Mortgage prices were weaker all day following the 10-yr and the rest of the curve. Not altogether surprising as the pundits continue to talk up stocks and with that market very overbought until last week, the improvement today could be expected. Technically, the 10-yr note yield fell to our target we outlined over a week ago, so the action today wasn’t totally unexpected.



This week is chuck full of first tier economic data (see morning report for details) and accordingly the markets are subject to a lot of volatility, beginning tomorrow at 8:30 with the core PCE inflation report that comes with June personal income and spending. The PCE (personal consumption expenditures) core read on inflation is expected to be +0.2%, slightly higher than in May (+0.1%). Fed officials pay a great deal of attention to it. Other data tomorrow; Q2 employment cost index, consumer confidence, Chicago purchasing managers’ index.



With the heavy economic calendar this week and the stock market maybe finding some support, the bond and mortgage markets will find it difficult to rally much more. 4.75% is a brick wall now and will take more market shocks to get the yield below it. The action today in equities implies there is still an underlying bullishness to the stock market and in turn one of the motivators for last week’s bond market rally has been eliminated (at least temporarily). The safe haven buying occasioned by the not surprising mortgage mess with sub primes has been discounted for the moment also. As for the Fed and the strong view they will cut rates by the end of the year, some of that speculation is also now discounted in the market. Not much to drive prices higher and yields lower until another shoe drops and we do expect another shoe and then more shoes to drop as the liquidity driven feeding frenzy is squeezed out globally.

[nitroae23]

Originally Posted by jgillisp

Monday July 30, 2007 4:30 PM


After the serious stock market thumping last week (DJIA -585 and S&P -75, the biggest S&P dump in 5 yrs), the equity markets got a boost today. Interest rates rallied hard last week with the 10-yr note yield down -19 basis points on safe haven buying tracing the action in stocks. Today the stock market saw short-covering and a splash of bargain hunting and in turn the bond and mortgage markets reversed and yields increased 4 basis points. Mortgage prices were weaker all day following the 10-yr and the rest of the curve. Not altogether surprising as the pundits continue to talk up stocks and with that market very overbought until last week, the improvement today could be expected. Technically, the 10-yr note yield fell to our target we outlined over a week ago, so the action today wasn’t totally unexpected.



This week is chuck full of first tier economic data (see morning report for details) and accordingly the markets are subject to a lot of volatility, beginning tomorrow at 8:30 with the core PCE inflation report that comes with June personal income and spending. The PCE (personal consumption expenditures) core read on inflation is expected to be +0.2%, slightly higher than in May (+0.1%). Fed officials pay a great deal of attention to it. Other data tomorrow; Q2 employment cost index, consumer confidence, Chicago purchasing managers’ index.



With the heavy economic calendar this week and the stock market maybe finding some support, the bond and mortgage markets will find it difficult to rally much more. 4.75% is a brick wall now and will take more market shocks to get the yield below it. The action today in equities implies there is still an underlying bullishness to the stock market and in turn one of the motivators for last week’s bond market rally has been eliminated (at least temporarily). The safe haven buying occasioned by the not surprising mortgage mess with sub primes has been discounted for the moment also. As for the Fed and the strong view they will cut rates by the end of the year, some of that speculation is also now discounted in the market. Not much to drive prices higher and yields lower until another shoe drops and we do expect another shoe and then more shoes to drop as the liquidity driven feeding frenzy is squeezed out globally.

The Stock Market has been detached from the RE Market for several years now,small increases and decreases in lending rates ain't gonna bring buyers back to the table,especially now that the banks took the easy money off the table and put it back in the freezer.