Market Analysis

Analysts had braced for a lower than expected Advance 2nd Qtr GDP estimate to be released this morning and instead received an estimate that was slightly lower than expected at 2.4% growth instead of 2.5% but not a major variance.  The curve ball for markets instead came from the revision upward to 1st Qtr GDP.  It was revised up a full percentage point from 2.7% growth to 3.7% growth which was much hotter than anyone had expected in terms of a revision.  Immediately there were 2 camps in terms of "spin".  On one side are the "bears" who pointed to a much larger decline in growth in the 2nd Qtr than was expected giving the revision upward to 1st Qtr GDP.  On the other side were the "bulls" who pointed to much better GDP data in the 1st Qtr as evidence that, while the employment sector has still not recovered, the economy is gradually improving and that employment growth will eventually follow suit.  The net impact on the markets is that stocks are relatively flat, after opening down and that mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac are only slightly better.  10 Year Treasury yields have benefitted the most this morning. In the last couple of weeks of trading there has been more volatility on the 10 Year Treasury notes than on MBS.  On days the 10 Year Treasuries have worsened, the MBS have remained relatively flat and visa-versa.

In separate economic news, the Chicago Purchasing Manager's Index (PMI) came in better than expected at 62.3 vs expectations of 56.3 and the University of Michigan final July Consumer Sentiment Index came in better at 67.8 than the 67.5 that had been expected.  Both of these reports came in better than June data.