Morning Report 5/31/12

Vital Statistics:

  Last Change Percent
S&P Futures  1309.6 1.0 0.08%
Eurostoxx Index 2124.7 8.5 0.40%
Oil (WTI) 87.6 -0.2 -0.25%
LIBOR 0.467 0.000 0.00%
US Dollar Index (DXY) 82.81 -0.212 -0.26%
10 Year Govt Bond Yield 1.59% -0.03%  
RPX Composite Real Estate Index 177.5 0.0  

Equity markets are flat after yesterday’s bloodbath, while bonds continue to rally.  The 10 year is trading at 1.59%. MBS are up as well. Lest anyone think this is strictly a US phenomenon, yields in the “safe” European countries like Switzerland, Denmark, Germany are even lower. On the other hand, Greek debt now yields 30.6%, which is pretty much the same level it was before default. 

Today is Jobs Day with a slew of labor-related economic releases at 8:30. Challenger has already said that announced job cuts were up 67% YOY in May.  This is a notoriously volatile index because one large employer (in this case HP) can dominate the month, so you have to focus on the trends and here 10 out of the last months showed increases. On the other hand, announced job cuts don’t always happen so take it with a grain of salt.  That said, there aren’t a lot of forward-looking labor measures out there.

Initial Jobless Claims came in at 383k, higher than the 370k estimate. The ADP Employment change report predicts 133k jobs were added in May.  1Q GDP was revised downward to 1.9%, in line with expectations. Consumption, exports, and residential fixed investment (finally!) drove Q1 GDP growth.

Delays in foreclosures and recent incentives by the Obama administration are making short sales more attractive to lenders than foreclosures.  Short sales were up 25% from a year ago as opposed to bank-owned sales which dropped 15%.  More aggressive pricing on the part of lenders is driving the increase.

Given the outsized rally in Treasuries yesterday, you would have expected a commensurate drop in mortgage rates.  But that didn’t happen. Mortgage rates are moving lower only grudgingly as rates fall, indicating that we may be reaching a floor, or at least further drops will be very hard to come by.

9 Responses

  1. With the downward revision, let’s face facts.

    Unless the Bundesbank and the Fed ride to the rescue, Obama is going to be a one termer, even if Mitt cuts Ann’s hair with a scissors and makes her ride in a carrier on top of the campaign bus.


  2. What more can the Fed do? They got their massive 10-year rally and drop in mortgage rates without having to use QE. I doubt they could have engineered such a rally.

    I think Bernake realizes that trying and failing to support Europe is worse than not trying at all.


  3. I was thinking more along the lines of a coordinated rescue of Europe with the Germans and possibly the Chinese.


    • banned:

      I was thinking more along the lines of a coordinated rescue of Europe with the Germans and possibly the Chinese.

      I’m trying to imagine what a coordinated rescue would look like. What do you think?


  4. well for one thing, another huge dollar liquidity operation to drive down the dollar versus other currencies


  5. then I originally thought they were going to money launder US funds through the IMF to rescue the sovreigns, but I blew that one all to hell.


  6. 1.533% on the 10-year. There has gotta be someone getting carried out here. Anyone hearing anything??


    • Haven’t heard about anyone in particular, but this is pretty stunning to watch. Absolutely massive move, especially given the already low levels. Long bond has rallied over 20bps in 2 days.

      If we get any kind of firm plan, even a final announcement of Greek withdrawal from the Euro, I think we see a fairly healthy sell-off. This is all fear of the unknown. But who is willing to stand in front of the train?


    • Finally bounced off the lows. 10yr up to 1.55. Perhaps Europeans squaring before going home. Dow starting to bounce as well.


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