Mel's Blog

July 09 Market News #16

July 31st, 2009 3:37 PM by Mel Samick

Friday's bond market has opened in positive territory despite stronger than expected economic readings. The stock markets are mixed, showing modest gains with the Dow up 17 points and the Nasdaq down  6 points. The bond market is currently up 62 basis points, which with yesterday's late strength should improve this morning's mortgage rates..

Today's major news was the initial reading of the 2nd Quarter Gross Domestic Product (GDP), which is considered to be the best indicator of economic activity. It was expected to show that the economy shrank at a 1.5% annual rate last quarter, but actually revealed a 1.0% decline. In addition to the stronger than expected reading for this quarter, the 1st quarter's GDP was revised lower from down 5.5% to down 6.4%. The downward revision is not necessarily good news for bonds and mortgage rates because it is too old to influence trading. However, it does increase the size of the improvement from the 1st quarter to the 2nd quarter, which should be taken as a negative for bonds and mortgage pricing. Fortunately, traders seem to be less concerned with these results than many had expected.

The second report of the day was the 2nd Quarter Employment Cost Index (ECI) that measures employers' costs for wages and benefits. It also gave us stronger than expected results with a 0.4% increase. This means that wage and benefit costs rose slightly more than analysts had predicted. This is also negative news for the bond market because rising wages can lead to wage inflation that likely spreads to other parts of the economy. But as with the GDP reading, this data is not having much of an impact on today's trading or rates.

Yesterday's 7-year Treasury Note auction had mixed results. Some measurements of whether the sale went well or not showed respectable results. But other readings indicated that there was a lackluster intere st in the auction. The bond market initially reacted negatively but then managed to bounce back before closing.

Next week is fairly busy with economic postings, bringing us a couple of very important reports. There is relevant data being posted four out of the five days, including Monday morning. Monday's sole report is July's ISM manufacturing index. This important index measures manufacturer sentiment about business conditions and is usually the first report we see each month.

                Mel

Posted in:General
Posted by Mel Samick on July 31st, 2009 3:37 PM

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