Yo-Yo markets continue to do their thing; up one day, down the next. Yesterday equity market lower, interest rate prices higher; this morning equity markets higher interest rate prices lower. The 10 at 8:00 2.52% +3 bps, at 9:00 2.50% -1 bp; stock indexes at 8:00 +50 on the DJIA, at 9:00 +11. Volatility in a narrow range for both stocks and bond markets.
Hong Kong demonstrations continued overnight and still going on with protestors wanting a more freer election for the ‘leader’ of the city. China watching closely fearing the possibility that unless the demonstrations are quelled they may spread to the mainland into additional demands for more democracy. So far global markets are not overly concerned but the world is watching closely. Any escalation that brings China into the issue will expand concerns of another Tiananmen Square. The Hong Kong demonstrations—in which protesters are resisting Beijing's proposed limitations on how the city's leader is elected—bring to the fore sensitive issues for the Chinese government. The leadership is always concerned that protests in one part of China, if left unchallenged, might encourage people in other parts to rise up. So far, although the protests continue, they are peaceful; no selling on the Shanghai market.
At 9:00 the July Case/Shiller 20 city home price index, expected +7.4% yr/yr frm +8.1% in June, declined to +6.7%. On a month-to-month the 20 city declined frm -0.3% in June to -0.5%. As you know we don’t put a lot of focus on the report but it clearly shows prices of homes in those 20 cities are declining; another soft housing report and more evidence that inflation isn’t anything more than talk. Prices rose in the year ended in July at the slowest pace in almost two years as still-tight credit and limited wage gains weigh on demand.
At 9:30 the DJIA opened +19, NASDAQ +10, S&P +3; 10 yr note 2.51% +2 bp and 30 yr MBS prices down 14 basis points. Within 10 minutes frm the open the DJIA traded unchanged. (see below for 10:10 level)
9:45 the Sept Chicago Purchasing Mgrs. index, expected at 62.0 frm 64.3 in August, the index declined to 60.5; still above 50 and suggesting expansion. Tomorrow we will get the national ISM manufacturing index, it too is expected to have declined in Sept to 58.0 frm 59.0 in August.
The final data point today; Sept consumer confidence frm the Conference Board, expected at 92.5 frm 92.4 in August, the index dropped to 86.0, the weakest since last May. The three reports this morning were all weaker than thought and after a better open in US stocks the key indexes are making new daily lows on the confidence slip.
The bond market is holding well and we have bullish technicals; that said though with employment on Friday unless Hong Kong blows up with military force we don’t expect interest rates or stock indexes will erupt into major moves.
PRICES @ 10:10 AM
10 yr note: -3/32 (9 bp) 2.49% unch
5 yr note: -3/32 (9 bp) 1.78% +2 bp
2 Yr note: -1/32 (3 bp) 0.59% +1 bp
30 yr bond: -6/32 (18 bp) 3.18% +1 bp
Libor Rates: 1 mo 0.152%; 3 mo 0.235%; 6 mo 0.330%; 1 yr 0.580%
30 yr FNMA 3.5 Oct: @9:30 102.19 -14 bp (-16 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Oct: @9:30 102.94 -11 bp (-18 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Oct: @9:30 103.28 -18 bp (-20 bp frm 9:30 yesterday)
Dollar/Yen: 109.65 +0.15 yen
Dollar/Euro: $1.2602 -$0.0083
Gold: $1214.00 -$4.80
Crude Oil: $94.72 +$0.15
DJIA: 17,030.37 -40.85
NASDAQ: 4488.76 -17.09
S&P 500: 1974.98 -2.82