Morning Report – The Week Ahead 10/27/14

Posted on October 27, 2014 by Brent Nyitray

US stocks are lower as overseas weakness spills over. Stress tests for the European banks showed Italian banks with some weaknesses. Bonds and MBS are higher.

Pending Home Sales rose .3% in September, slightly below expectations. They are up 1% year-over-year. Pending Home sales rose in the Northeast and the South, while they fell in the West and Midwest.

We have the FOMC meeting this week, which will probably dominate trading in the bond markets. This one will not have any new economic projections, however. In spite of Bullard’s musings last week, the consensus is that QE ends at this meeting. I suspect all of the action will be in the minutes, which will be released at a later date, not the FOMC statement. Here is Goldman’s take on the meeting.

Interesting backstory to the big capitulation in the bond market last week. When yields crashed through 2%, dealers turned off their automated market-making systems and executed trades over the phone. They widened bid ask spreads and decreased the size of their markets. In other words, when the markets most needed liquidity, it evaporated, making the move more pronounced.

Someone is betting on Detroit – buying 6,000 foreclosures for $500 a pop. Would be interested to hear the business plan.

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