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Weekly jobless claims hit at 8:30 and were better than expected, down 31K compared to the estimates of down 15K. 473K new filings for unemployment isn't good but in this paranoid market environment it did put a bid in stock indexes and turned the treasury markets from early price gains to unchanged at 9:00. Last week new claims were at 500K, in the data this morning that was revised to 504K, Continuing claims fell to 4.456 mil to 4.518 mil. The better claims is nothing to celebrate, at 473K new unemployment claims and no real increase in new job creation the outlook for increased employment remains bleak as the economy struggles along in what will be a very long period of recovery. The likelihood that job growth is on the horizon is wishful but hopeful thinking.

At 9:30 the DJIA opened +33, the 10 yr note -2/32 at 2.55% +1 BP and mortgage prices at 9:30 holding minor gains, +3/32 (.09 bp) frm yesterday's close.

As long as the housing sector is still declining as was evident in this week's July data on existing and new home sales and consumers unwilling to spend the economy will at best muddle along. Almost every measurement of the economy that has hit over the past six weeks has been soft; manufacturing is slowing, consumers are holding back, there is no market of consequence for home purchases, and businesses uncertain how all the actions out of Congress will impact their business (heath care, FinRegs). While the outlook has changed from exuberance over the recovery to one of uncertainty, markets are adjusting to that "new normal" that was so roundly ignored by most analysts. Still don't expect that double dip that seems to surface any day the equity market declines, but it is unlikely economic growth and lower unemployment is on the radar.

Tomorrow's revision of Q2 GDP and Bernanke's comments opening the annual Jackson Hole Conference of economists should limit any significant moves in either the stock or bond markets today. Bernanke will open the conference with what is anticipated to be some additional clarity as to what the Fed is expecting and what the Fed's sketchy plans might be to support the economy. Very low interest rates are going to be with us for at least another year, the Fed has little ammo now other than to keep interest rates low. There is some chatter the Fed will begin to "punish" banks that are stashing huge sums at the Fed instead of using it to stimulate borrowing and investments. Whatever Bernanke has to say tomorrow it will likely be couched with Fedspeak and clouded with unrealistic positives about economic improvement----the Fed can't openly say what most of its officials are now worrying about.

The MBA said this morning that 13.97% of all mortgage loans are delinquent or in foreclosure; a huge number but a little better than last month. No silk purses out of that pigs ear.

At 1:00 this afternoon Treasury will auction $29B of 7 yr notes to complete this week's borrowing to fund the growing federal deficit. Yesterday the 5 yr note auction was not the best, it came with a higher yield than what traders were expecting yesterday morning but overall still not bad. The rate the 5 yr got was about 2 basis points higher than trading in the WI market. Today's 7 yr should do better as investors are moving farther out the curve on strong belief that recovery will be moderate at best, that the Fed will have to maintain low rates at least through 2011, and deflation might be brewing. Tuesday's 2 yr auction and yesterday's 5 yr auction are both underwater based on what the yields were at each auction, but only slightly.

We are not expecting much change in stock indexes or the rate markets today ahead of tomorrow's GDP report and Bernanke's comments from Jackson Hole. The rate market remains bullish, the equity market bearish. Looking for the DJIA to decline to 9000 before the end of the year and long term rates to decline another 25 basis points on the 10 yr note but mortgage rates down another 15 basis points frm present levels.

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