Current Trend Direction: Higher
Risks favor: Carefully Floating
Current Price of FNMA 4.5% Bond: $100.22, +34bp
Mortgage Bonds are starting the week to the upside, as Stocks slide lower. Stocks are reacting to renewed fears of a slower than anticipated world economic recovery. If you look back at Friday's update, we felt concerned about the negative technical signals we were seeing for Stocks and wrote the following:
The technical picture for stocks looks to be bearish - A variation of an Evening Star Pattern along with a negative Stochastic Crossover, suggests a correction.
The Dow is down 250 points, or almost 3% since. A correction is usually a 5-10% drop in a short time.
China’s Stock market dropped nearly 6% after their second largest insurer's profits fell 45% year-over-year and one of their huge manufacturers said it sees no sign of a recovery. The US consumer plays a huge role in Chinese exports – for example, Sony and Nissan both generate a third of their revenues from the US. With US consumer spending and, as explained in Friday's Update, the Velocity of Money both slowing, China feels the effect. Additionally, there is concern over the accuracy of the data coming out of China...ya think?
Amidst all the global negativity, was some better than expected news on US manufacturing, as the Empire State Index came in at 12.08, far better than expectations of 2.20. However, this report did little to influence the heavy negative tone for Stocks at the opening of trading.
There are no Treasury auctions this week, but this Thursday will bring the announcement for the upcoming round of Bond supply that will hit the market next week. We have come to see that Bond prices may take a big hit off the announcement of more heavy supply coming to market. And recently, just the anticipation of the announcement was reason enough for Traders to sell off in fear. The last announcement was on August 5th, but prices sold off sharply on the 4th as Traders tried to get ahead of the news. Let's watch carefully on Wednesday to see if this pattern repeats.
Call Philip Jensen at 480-682-6613 or visit www.PhilipJensen.com for more information
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