Interest rates continued to improve in the early going this morning with early trading in the US stock indexes aiming to a lower 9:30 open. European shares ended a two-session climb, as lackluster German industrial production data dealt another blow to the continent’s largest economy and the IMF report out today. US stock indexes also being effected by the IMF lowering its growth outlook once again. The 10-year German bund yields earlier approached an all-time low as data showing industrial production dropped the most since 2009 in August boosted speculation the outlook for Europe’s largest economy is deteriorating.
Once again the IMF has cut its outlook for global growth in 2015 and warned about the risks of rising geopolitical tensions and a financial-market correction as stocks reach “frothy” levels.IMF saying the global growth will grow 3.8% in 2015, down from 4.0% from what the fund said in July. The reduction due to more weakness in the EU, Russia and Brazil economies slowing. “In advanced economies, the legacies of the pre-crisis boom and the subsequent crisis, including high private and public debt, still cast a shadow on the recovery,” the IMF said in its latest World Economic Outlook. “Emerging markets are adjusting to rates of economic growth lower than those reached in the pre-crisis boom and the post-crisis recovery.” Last week IMF Director Christine Lagarde warned that officials need to act to prevent a prolonged period of sluggish growth, a trend she called the “New Mediocre.” Raising growth in emerging and advanced economies “must remain a priority,” the IMF report stated. According to the report, a sustained period of policy interest rates near zero in advanced economies has raised the risk that some financial markets may be overheating.
The euro area will grow 1.3% next year, slower than the 1.5% pace predicted in July, after a 0.8% gain this year, according to the IMF. The IMF said Japan’s economy will expand 0.8% next year, compared with a 1.1% advance predicted in July. The IMF now sees Brazil growing 1.4% next year, compared with 2% in July. The US is predicted to grow 3.5% in 2015 according to Fund.
At 9:30 the DJIA opened -100, NASDAQ -31, S&P -12. 10 yr note at 9:30 2.39% -3 bp and 30 yr MBS prices +14 bp from yesterday’s close and +28 bps from 9:30 yesterday.
At 10:00 the JOLTS August job openings was expected at 4.71 mil from 4.673 mil; we hardly give the report any thought whatsoever. As reported 4.835 mil.
At 1:00 Treasury will go after $27B of 3 yr notes at the first of three auctions this week.
As far as I am concerned the report of the day hit at 3:00 pm this afternoon; August consumer credit. Admittedly the report doesn’t get the attention it should but we follow the revolving credit data within the overall report as a more important measurement of confidence by consumers with how they employ their credit cards, so far this year credit card use has been minimal at best.
All of our work points to a continuing decline in long term interest rates. Technicals all bullish. Not willing to project how low rates will fall but from a traders perspective you have to be long the bond market at the moment. There are enough crosswinds in the fundamentals, enough to confuse markets. Once again, we remind that for the near term there is no better way to take advantage of the rate declines unless you follow how the markets are performing (where the money is flowing---the technical measurements.
PRICES @ 10:15 AM
10 yr note: +9/32 (28 bp) 2.39% -3 bp
5 yr note: +5/32 (15 bp) 1.66% -4 bp
2 Yr note: +1/32 (3 bp) 0.52% -1 bp
30 yr bond: +18/32 (56 bp) 3.10% -3 bp
Libor Rates: 1 mo 0.153%; 3 mo 0.232%; 6 mo 0.326%; 1 yr 0.571%
30 yr FNMA 3.5 Oct: @9:30 102.95 +14 bp (+28 bps from 9:30 yesterday)
15 yr FNMA 3.0 Oct: @9:30 103.46 +11 bp (+18 bp from 9:30 yesterday)
30 yr GNMA 3.5 Oct: @9:30 104.09 +17 bp (+23 bps from 9:30 yesterday)
Dollar/Yen: 108.17 -0.61 yen
Dollar/Euro: $1.2646 -$0.0009
Gold: $1210.60 +$3.30
Crude Oil: $89.51 -$0.83
DJIA: 16,892.43 -99.48
NASDAQ: 4428.82 -25.98
S&P 500: 1954.83 -9.99