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| Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com |
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| Monday, November 01, 2010 | ||
| Treasuries and mortgage markets opened better this morning and the equity markets also better. Nothing significant, elections tomorrow not a huge market deal but on Wednesday the event of the week when the FOMC announces its QE details. So far after all the hoopla six weeks ago when the Fed said it was prepared to ease the bond and mortgage markets are right about where they were trading when the 9/21 FOMC policy statement was released. A big rally in the rate markets, then a big sell-off took interest rate rates at the long end of the yield curve gave the markets a ride with no changes.
At 8:30 this morning Sept personal income and spending; income declined 0.1% against expectations of +0.2, spending increased 0.2% against estimates of increasing 0.4%. The weak income and spending didn't move markets although from the perspective of recovery the data was not good.
At 10:00 Sept construction spending was expected to have declined 0.7%, spending increased 0.5%.
The data point of the day; at 10:00 the Oct ISM manufacturing index, expected at 54.0 frm 54.4 reported in Sept, was stronger at 56.9; new orders at 58.9 frm 51.1, employment at 57.7 frm 56.5 and prices pd at 70.5 frm 71.0. The report stronger in every category, any index over 50 is considered expansion. The initial reaction took treasury prices down from their best levels, mortgage prices also came off levels at 9:30; +2/32 frm +4/32. The stock market exploded with the DJIA up 124 points at 10:05 am. The report will weigh on the rate markets but we don't look for any substantial price declines.
This Week's Economic Calendar: Tuesday; (no data) Wednesday; 7:00 am MBA weekly mortgage applications 8:15 am Oct ADP private jobs (+23K) 10:00 am ISM services sector index (53.4 frm 53.2 in Sept) Sept factory orders (+1.7%) 2:00 pm Oct auto and truck sales (autos 3.8 mil, trucks 5.1 mil) 2:15 pm FOMC policy statement Thursday; 8:30 am weekly jobless claims (+11K back to 445K) Q3 advance Q3 productivity (+0.9%, Q2 -1.8%) Q3 unit labor costs (+1.0%) Friday; 8:30 am Oct employment report (non-farm private jobs +60K; overall non-farm jobs +60K; unemployment rate unchanged at 9.6%)
Markets still uncertain about what the Fed intends with the easing move on Wednesday. The Fed is going to begin buying treasuries, that is baked in the cake. How much and when is question one; question two is how the bond and mortgage markets will take it? Will more easing increase concerns that inflation will increase, the fixed income markets are fearful easing may actually improve economic recovery and ignite a move higher in the inflation rate. The Fed has made it very clear it wants the level of inflation to increase to quell deflation and possibly motivate consumers; fixed income investors worry over inflation increases. The tug of war since the 9/21 FOMC meeting, sending rates lower, then driving rates back higher to levels when the QE statement was released implies no certainty either way.
We expect the bond and mortgage markets will improve on the initial reaction to Wednesday's easing announcement but we are not yet in the camp that is expecting the bellwether 10 yr, driver for mortgage rates, to fall to 2.25% as some believe. Overall we still question that another QE is necessary and have concerns it won't help revive the economy. Lower rates, if we get them, are not likely to stimulate the depressed housing sector, consumer spending or job growth; the Fed may be pushing on the string. Talk of a weakening dollar resulting from the Fed money printing being the catalyst for an increase in exports is too optimistic, may help but not enough to increase economic growth much. | ||
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