Daily Market Analysis – Al Hensling

Yesterday the US equity markets saw huge selling, the DJIA -313, NASDAQ -143, S&P -50. The 10 yr note and tall treasuries benefited as did MBS prices. This morning in early trading the indexes are better as has been the pattern since six weeks ago; the next day after a sell-off in equities the indexes improve. If it were not so obvious it would be a great way to day trade indexes and treasuries; one of these days it won’t work that way but so far a hell of a pattern in hindsight.

The Japanese stock market was hit hard today following the US plunge; Hong Kong saw heavy selling, China very light selling, in Europe the key markets still holding minor gains. The US 10 trading unchanged at 9:00 while 30 yr FNMA 3.5 Oct coupon unchanged from yesterday.

The July Case/Shiller 20 city home price index at 9:00, the 20 city m/m -0.2% against +0.1% expected. Yr/yr the 20 city was expected to have increased 5.3%, as reported +5.0%. It is old data and we don’t pay that much attention to it—to local, tracking 20 cities. The idea is that the 20 cities reflect national data. What is the real take on housing prices? Yesterday NAR reported sales in Aug were down 1.4% and said the weakening was due to lack of inventories and increasing prices. Today Case/Shiller showing striking weakness in home prices, at -0.2% in July for the adjusted 20-city index which, after a downward revision to June, is the third straight 0.2% decline.

After trading better in the futures markets early this morning the DJIA opened +5, NASDAQ +1, S&P +5. The 10 yr note at 9:30 2.08% -1 bp; 30 yr MBS price +6 bps from yesterday’s close and +19 bps from 9:30 yesterday.

At 10:00 the Sept consumer confidence index, expected at 96.0 from 101.5 in August, jumped to a big 103 reading. That is a number that defies explanation.

San Francisco Fed President Williams spoke on Monday afternoon and said that the FOMC was still on course to hike rates this year. Williams went on to say that the decision not to act at the September FOMC meeting was a “close call”. Economic data has been “above the expectations”,….. “needed to get this initial rate hike in a way done”,…. “starting to see signs of imbalances to risks” with high asset prices especially real estate and he expects full employment “in the near term” with inflation “low around the globe” where policy responses have “provoked ..downward pressure in the US.” Yet another voice from the wilderness.

Techs remain bullish; we will continue to float to start today.

PRICES @ 10:00 AM

10 yr note: +3/32 (9 bp) 2.08% -1 bp

5 yr note: +3/32 (9 bp) 1.40% -2 bp

2 Yr note: +1/32 (3 bp) 0.66% -2 bp

30 yr bond: +1/32 (3 bp) 2.88% unch

Libor Rates: 1 mo 0.193%; 3 mo 0.326%; 6 mo 0.533%; 1 yr 0.854%

30 yr FNMA 3.5 Oct: @9:30 104.06 +6 bp (+19 bp frm 9:30 yesterday)

15 yr FNMA 3.0 Oct: @9:30 103.95 +9 bp (+13 bp frm 9:30 yesterday)

30 yr GNMA 3.5 Oct: @9:30 104.33 +2 bp (+20 bp frm 9:30 yesterday)

Dollar/Yen: 119.81 -0.11 yen

Dollar/Euro: $1.1204 -$0.0040

Gold: $1130.60 -$1.10

Crude Oil: $44.99 +$0.56

DJIA: 16,035.63 +33.74

NASDAQ: 4558.70 +14.73

S&P 500: 1888.97 +7.20

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