Money Market Recap & Forecast for July 12th
July 12th, 2010
Written by Greg Frost Jr.
Categories: Announcements, Frost Mortgage Monday, Mortgage professional tips
MMRecap for July 12
Even though trading was light and economic news was scarce last week, U.S. Treasuries had a tough go of it.
On Tuesday, stocks rallied as bargain hunters moved in, apparently taking advantage of the 15% slide that has taken place over the past two months. Stocks also reacted well to booming European markets.
Treasuries sold, sending yields, which move inversely to price, up. But Wall Street lost steam in the afternoon, and bonds recouped some losses. The benchmark 10-year yield closed at 2.93% after hitting a mid-morning high of 2.98%.
The ISM index on the service industry for June fell more sharply than expected. It dropped to 53.8 from 55.4, but it still indicates expansion in the sector.
Bonds never recovered from Wednesday’s huge rally on Wall Street. A pre-announcement of much stronger-than-expected earnings by State Street bank provided hope for the earnings season, which starts this week. Money flew into equities, and Treasuries suffered.
The suffering continued Thursday. A decline of 21,000 first-time unemployment claims to 454,000 for the week ended July 3 set the tone. In addition, the four-week average, which eliminates volatility, fell to 455,000.
Retail stores also released same-store sales, which were stronger than expected, and positive news regarding the European banks encouraged more buying in stocks as Treasuries sold. At the end of the session the 10-year yield hit 3.02% — the first time it’s been above 3% since June 28.
The week ended with wholesale inventories for May, which rose 0.5%. Treasuries sold on upcoming auction news and suspicion that global recovery is on the way, sending the 10-year yield to 3.05%.
Refinancers continued to rule during the week ended July 2. According to the Mortgage Bankers Association, refis rose 9.2% with the index hitting a 13-month high. Purchase apps fell 2% and are down 34.7% from one year ago.
As promised, this week is loaded with economic reports, but it doesn’t get going until Wednesday when retail sales for June are due. Analysts expect sales to fall 0.3%, which would better than May’s 1.2% decline. Excluding transportation, sales could edge down 0.1%, which also beats the previous 0.8% loss. If on target, these numbers shouldn’t excite the stock market nor cause buying in Treasuries.
The other reports scheduled — import and export price indices for June and business inventories for May — won’t make a ripple.
The minutes from the Fed’s June 22-23 meeting, to be released Wednesday afternoon, could provide information regarding the economic outlook and clues regarding rate hikes. This always interests bond traders and could move the markets. But no one knows what was said.
Thursday is major as far as reports go, starting off with first-time unemployment claims for the week ended July 10. The producer price index (PPI) for June, which checks for price inflation at the wholesale level, is also due. It’s expected to rise 0.1% versus a 0.3% decline in May. But that’s well within acceptable guidelines. The core rate, which is the one the Fed watches, could also rise by an acceptable 0.1% — down from a 0.2% gain in May. The core rate excludes volatile food and energy prices. The lack of inflation indicators should sit well with traders.
The remaining reports focus on manufacturing, starting out with industrial production and capacity utilization for June. Production is expected to rise 0.2% — down from May’s’ 1.3% increase. Capacity utilization, which is less important, should edge up to 74.2% from74.1%. These numbers could foster light buying in Treasuries.
Traders might like the NY Empire State index on July manufacturing conditions. It’s expected to decline to 18.5 from 19.57. The more influential Philly Fed index for July should tick up to 8.6 from 8.0.
On Friday the June consumer price index, which is THE index on inflation, should come in flat after falling 0.2% in May. The core rate is expected to rise 0.1%, the same as in May. These data should calm inflation watchers.
The reports end with what could be bond-friendly news from the University of Michigan. Analysts expect the preliminary consumer sentiment survey for July to show a significant drop to 72 from 76. This could stir up buying in bonds.
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