Market Analysis

Bonds are improved today as are stocks. Stocks are responding to reports from China that industrial production increased there by 13.9% in August and by the Basel III agreement, a new international agreement on the level of reserves that the largest banks will be required to hold which, while an increase (from 2% to 4.5% of assets), was a lower increase than the market had feared. Also the phase in period extends to January 2019 which will allow banks plenty of time to adjust to the new requirements. Pending clarification by global regulators for some of the requirements of Basel III, some analysts are saying that many US banks already meet the 2019 requirements. Bonds are experiencing a small technical correction after they became oversold over the past two weeks (the yield on the 10 YR Treasury moved from approx 2.47% on 8/31 to to 2.81% on 9/10). Mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac have not been nearly as volatile and as such we are not seeing the wide fluctuations in mortgage rates either for the better or for the worse. It is interesting to note that the general consensus within the mortgage analyst community appears to be that the failure of the 10 Yr Treasury to successfully hold below the 2.5% level and the strength of the correction to move higher than 2.5% for the 10 Yr Treasury appears to significantly decrease the likelihood that mortgage rates will move lower than current levels. 

Below is a recap of this week’s economic calendar:

• Monday, September 13, 2010

Economic calendar vacant

Tuesday, September 14, 2010

• August Retail Sales – expected up .3% vs up .4% in July. Excluding the auto component expected up .3% vs up .2% in July.
• July Business Inventories – expected up .7% vs up .3% in June.

Wednesday, September 15, 2010

• September NY Fed Empire Manufacturing Survey – expected 6.4 index value vs 7.1 reading in August.
• August Industrial Production and Capacity Utilization – production expected up .3% vs up 1.0% in July. Utilization expected up to 75.0% vs 74.8% in July.

Thursday, September 16, 2010

• Initial Jobless Claims week ended 9/11 – expected up 9,000 to 460,000 vs 451,000 the prior week.
• Continuing Jobless Claims week ended 9/4 – expected down 28,000 to 4.450 million vs 4.478 million the prior week.
• August Producer Price Index (PPI) – expected up .3% vs up .2% in July. Core PPI (excluding food and energy) expected up .1% vs up .3% in July.
• September Philadelphia Fed Index – expected 2.0 vs negative 7.7 in August

Friday, September 17, 2010

• August Consumer Price Index (CPI) – expected up .2% vs up .3% in July. Core CPI (excluding food and energy) expected up .1% vs up .1% in July.
• Initial September University of Michigan Consumer Sentiment Index – expected 70.0 value vs 68.9 in August.