Yesterday the stock market took a major hit; early this morning the key indexes started better. The drop in stocks is adding a little support to the bond and mortgage markets although so far not a lot of improvement in rates and MBS prices given the strong declines in stocks this week. Investors and traders are want to think that a serious correction may be ahead; as long as that thought permeates there will not be much of a decline. The general consensus is still bullish for stocks; the bulls see the current decline as a buying opportunity, but another day like yesterday that thought will fade quickly.
Some of the decline in stocks is likely due to concerns Europe’s economies may be more vulnerable than previously thought. Yesterday reports from Moscow that a pro-Kremlin legislator wants to allow the seizure of foreign assets. Actual asset seizures could push Europe closer to recession, especially those countries with close economic relations with Russia. Just the threat of such seizures could further escalate tensions over Ukraine. There is a momentary idea gaining some momentum that stock prices are too high given the economy and economic outlook; that may be but with continuing low rates even with the belief the Fed will increase rates next year, there is no other place to go with investments than the equity markets.
The current strength of the dollar and the outlook that it will continue to strengthen against other currencies is seen by some Fed officials as a future drag on the US economy because it will slow exports. Atlanta Fed Pres. Lockhart and NY Fed Pres. Dudley said this week if the dollar were to strengthen a lot it may hamper the central bank’s efforts to spur growth.
The final Q2 GDP data out this morning; expectations were for growth to be revised higher frm the preliminary report last month. The prelim was a growth of 4.2% and there was a lot of talk early this week that the revision this morning would be to +4.6%. As reported, right on forecasts, +4.6%. Q1 GDP -2.1%.
At 9:30 the DJIA opened +82, NASDAQ +19, S&P +6; 10 yr 2.53% +2 bp. 30 yr MBS price -13 bp.
The U. of Michigan consumer sentiment index, expected unchanged at 84.6 frm two weeks ago, as reported, 84.6.
Breaking; Bill Gross has left PIMCO and will join Janus Capital. Gross and PIMCO’s owner Alliance have been at odds after Gross investments had soured a little once the interest rate market ended its 25 year bull run that took interest rates in early 80s frm 20% (2 yr note) to 0.57%. Earlier this year co –CEO Mohamad El Erian resigned PIMCO but stayed with the parent Alliance.
Americans Phil Mickelson and Keegan Bradley came back on the final hole to defeat Sergio Garcia and Rory McIlroy to put the U.S. ahead of Europe after the opening session of golf’s Ryder Cup. The Americans lead the sport’s top international team competition 2 1/2 to 1 1/2 after the fourball matches, the afternoon’s foursome competition is starting.
PRICES @ 10:00 AM
10 yr note: -6/32 (18 bp) 2.53% +2 bp
5 yr note: -6/32 (18 bp) 1.79% +3 bp
2 Yr note: -2/32 (6 bp) 0.58% +2 bp
30 yr bond: -7/32 (22 bp) 3.22% +1 bp
Libor Rates: 1 mo 0.151%; 3 mo 0.233%; 6 mo 0.331%; 1 yr 0.582%
30 yr FNMA 3.5 Oct: @9:30 102.13 -13 bp (-4 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Oct: @9:30 102.93 -13 bp (-14 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Oct: @9:30 103.33 -7 bp (+3 bp frm 9:30 yesterday)
Dollar/Yen: 109.13 +0.38 yen
Dollar/Euro: $1.2719 -$0.0032
Gold: $1217.30 -$4.60
Crude Oil: $92.91 +$0.38
DJIA: 16,992.42 +46.62
NASDAQ: 4478.60 +11.86
S&P 500: 1968.21 +2.22