Bond prices rose today, sending 30-year bonds up a point, after data showed signs of weakness in underlying retail sales and regional manufacturing.
U.S. retail sales rose a brisk 1.4% last month but were much less impressive once autos were stripped out, while September's data was revised to show a larger drop overall than earlier reported. Combined with a separate report showing much weaker growth than was expected in New York State manufacturing, the data supported earlier bond market gains, which came in sympathy will rallying euro zone government debt.
The Empire State manufacturing data came in weaker than expected. It will be volatile, a choppy ride as we recover. The Treasury market had seen a bid from early morning and has rallied on this news.
The retail sales data was definitely positive for October, but the revision for the prior month neutralizes the impact. I think we are moving in the right direction, but it's not a straight line higher. in the short term Rates will likely fall .125% - .25%
Monday we saw the equity markets rally nicely, and in addition many investors had intra-day price improvements. Helping the interest rate markets was a record $40 billion 3-yr Treasury auction that went well. The 3-year note auction gave investors a yield of 1.435%, with a bid/cover ratio of 3.33 - much better than average. Today we have $25 billion of 10-yr Treasury notes to wade through, with no economic news, but some carry through from yesterday puts out current 10-yr at 3.45% and mortgage prices better between .125 and .250.
But... why are bonds and stocks both doing well? Didn't we just learn that the unemployment rate jumped to 10.2% and reached the highest level since 1983? The rate reflects the fact that the number of people unemployed is increasing, and unemployed people are notorious about not being able to pay their mortgage and, obviously, having their "consumer confidence" be low. And when confidence is low, those flat screen TV's don't fly off the shelves. If the economy is about to rebound, as the stock market thinks, then why is the Fed expected to keep low rates for an extended period of time? Many believe that the outlook for growth, or at least a strong recovery, is grim: there is just too much weakness underlying the economy for the Fed to move to higher rates as inflation is not a worry at the moment.
So place your money wisely, since something has to give.
Comment here or email your questions to cmcdonald@wrstarkey.com
Will "Whoo-hoo WaMu," the no-frills, no-fees, hip and neighborly bank, find a new identity with conservative JPMorgan Chase, which advertises value and security? WaMu's ads have mocked stodgy banking and portrayed customers in fantasies about financial freedom. Chase's brand is less distinguishable, other than its image as large and convenient due to its strong presence in key markets including the East Coast. Chase could decide to eliminate WaMu's playful approach in the midst of economic upheaval, and opt for a more conservative and traditional image.
Also, JPMorgan Chase announced that Washington Mutual's Chief Executive Officer Alan Fishman and five other senior executives will leave the company, as the combination of the financial services giant and the failed thrift makes their positions redundant. Bank employees will know by Dec. 1 whether their jobs will be eliminated. Fishman held the top job for just a few weeks before WaMu was sold to Chase for $1.9 billion. He will forgo the multi-million severance pay afforded through his employment contract, but may keep a $7.5 million signing bonus.
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