Rate markets started early this morning generally unchanged but with a very slight price improvement from yesterday’s gains; US stock indexes at 9:00 were slightly weaker. Today we do not expect much movement in either the bond market or the mortgage markets; the 10 yr note is still bearish from a technical perspective, unable to break below a very significant chart trend line; the same thing in the MBS market. While the bearishness has softened over the last couple of weeks, it is mainly due to traders and investors holding still ahead of next week.
Forget today, next week will be one of the most critical week’s over the last few years. The week has more meat on the bone than we have had to deal with for years. I can’t stress strongly enough that next week is very likely to set a big movement in the interest rate and stock markets. Traders and those that take a narrow time frame view of the markets should get plenty of rest over this weekend because financial markets next week are likely to be tested severely; whether bear or bull it will be a week to remember.
Here is the run-down for next week; Monday June pending home sales frm NAR. Tuesday July consumer confidence frm the Conference Board, and the beginning of the two day FOMC meeting. Wednesday, a huge day; ADP will report its private July jobs data, the first look at Q2 GDP, Q2 employment index, July Chicago purchasing mgrs.. index, AND the FOMC policy statement. Thursday, the July national ISM manufacturing index, weekly jobless claims, June construction spending, and July auto and truck sales for July. Then comes Friday; the BLS “official: July employment report, June personal income and spending and June factory orders. You can’t get much more than all that.
No secret now that Bernanke will make his decision about when, if, the Fed will begin withdrawing market support for MBSs. He has explicitly made it abundantly clear that the Fed will decide what to do based on incoming data. There is enough next week for markets to form more opinions on the Fed’s future decisions. A few weeks ago markets had circled the wagons around the idea the Fed would began tapering in Sept; since then with additional comments from Bernanke in a few speeches that belief has lessened.
Always looking for clues; although not a strong clue, for over the last week and a half the stock indexes have essentially flat-lined with little changes after the strong improvements over the past few months. This morning the indexes are weaker again, not much but equity markets are not comfortable with the worry that the economy has slowed in Q2 (we get the first look next Wed). A turn lower in stocks will add some support for the bond and mortgage markets. Professional investors were heavy buyers of stocks the last few months, they are beginning to withdraw while the small investors are piling in—finally. Usually that is a red flag.
The only data today; the U. of Michigan consumer sentiment index at 9:55. It was expected at 84.0 frm 83.9, as reported the index increased to 85.1 frm 84.5 at the end of June. It is the strongest reading for the index in the last six years as consumers increasingly are more optimistic. That said though, we still see the index as an emotional one more that factual based on the current state of the economy with still very high real unemployment. Take away part time jobs and job gains by the under-employed and the rate is still hovering around 15% of workers with jobs not up to pre-crash levels