Last Week; the consolidation continued in the US financial markets. The DJIA rallied 511 points, the NASDAQ +104, and the S&P 500 +55. Mortgage prices barely moved through the week, up 7/32 (.22 bp) for 30s and 15s; the 10 yr note yield moved back above 3.00% to 3.06% +8 BP. There was little in the way of economic data; the July ISM services sector data was weaker than expected and weekly jobless claims somewhat better but not much on either reports. The rally in stocks was mostly al short-covering and did not change the bearish trend. Interest rates remain technically bullish but the key 10 yr note will need more soft data to work much below 3.00%. What we did notice last week was that mortgages held well against the treasury market; however we see no reason to expect mortgage rates to move much lower as long as the treasury rates find resistance at the present very low yields across the entire yield curve.
This Week; after little data last week this week is loaded with economic releases. Not only data that will be key but Treasury will auction $69B of notes and bonds this week beginning with $35B of 3 yr notes on Monday at 1:00 pm. Expect the week to start slowly with not much change on Monday; the equity market may have a little more to go on the short-covering rally but the market is no longer technically oversold and in turn may embolden sellers to return. No double dip but not much in the way of improvement for the key indexes as the outlook has become increasingly more of a concern. Recent reports on various segments of the economy have fallen short of the excessive optimism that had captured investors' since last April. There is no way to ignore the reality that the housing sector remains in depression; every significant report on the housing sector has been disappointing and will likely continue that way for the rest of the year. There is no appetite in Washington to extend the homeowners tax credit that was extremely supportive to increasing sales---a shame as housing will keep the economic recovery muddling along with little growth.
