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Crestico Funding

Market Update Monday 11-21-2011

Monday, November 21, 2011 - Article by: Crestico Funding - Message

Treasury rates a little lower this with the stock market opening weaker. That the Super Committee has failed to reach any compromise is driving markets this morning. The bond and mortgage markets should hold through the week but unlikely to decline in rates much. It will be a short week with Thanksgiving on Thursday and a skeleton crew on Friday with most taking the day off. The rest of the world doesn't do Thanksgiving so outside the U.S. it's business as usual. The only data today is October Existing Home Sales; Tuesday has the second look at Q3 GDP; Wednesday is loaded with data including Weekly Jobless Claims normally released on Thursdays.

The Super Committee has already admitted defeat with its deadline on Wednesday. No compromises on taxes and spending cuts so automatic spending cuts will occur totaling $1.2T including cuts in some of the social programs. The fact that these automatic cuts are supposed to occur mean it is unlikely that in the end there will be no cuts as Congress and the Administration won't step up and do it. 2012 is all about the election a year from now and given the impasse between Republicans and Democrats the year won't likely see anything of real substance in relation to budgets and spending with both parties unwilling to take their responsibilities seriously---what politicians take seriously is being re-elected.

The Treasury will auction $99B of Notes beginning Monday with $35B of 2-Year Notes, Tuesday $35B of 5-Year Notes and Wednesday $29B of 7-Year Notes. Europe still holds U.S. markets by the throat with 5 of the EU countries facing debt crisis and three countries currently changing governments in attempts to deal with huge austerity plans that will increase taxes and cut large chunks out of spending.
The 10-Year Note trades around 2.00% and seems to find resistance when its yield moves below 2.00%; mortgages continue to lag treasuries as the move lower in rates is primarily into treasuries as insurance against continuing uncertainty in Europe.

The DJIA opened -125, the 10-Year Note at 9:30 +13/32 at 1.96% -5 bp while mortgage prices at 9:30 +4/32 (.12 bp).

At 10:00am October Existing Home Sales expected down 1.2% were up 1.4% to 4.97 mil annualized; the median sales price $162.500 -4.2% yr/yr, 28% of sales were distressed sales, down from 30% in September. There is an 8 month supply based on current sales down 2.2% from September. There was no immediate reaction to the better report.

This Week's Economic Calendar:The Bundesbank commenting today that growth in Germany, Europe's largest economy, may slow to a near standstill next year as the region's debt crisis saps demand for exports. Europe is on the path of another recession as it cannot come up with a way to deal with the massive debts accumulated by Southern Europe countries. The bond market continues to move with equity markets, that isn't likely to change anytime soon. As stocks fall on failure of the Super Committee, the weakening outlook for the global economies and now increasing fears S&P and the other rating agencies may once again lower US economic outlook and cut our debt rating again. Even if the agencies lower US debt ratings it isn't likely to impact our rate markets directly as the US will still be the place for worldwide investors to seek safety in the present chaotic world.

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