The Shirmeyer Report's blog

Not a good week for the economic bullish view; durable goods orders in June lower than expected, weekly jobless claims still running at 450K a month, Q2 GDP +2.4% a big decline from Q1 revision to +3.7%, U. of Michigan and the Conference Board's consumer measurements hanging at multi-year lows and the Fed's Beige Book trying to make that silk purse out of the pig's ear. Treasury sold another $104B of debt to fund the budget deficit. With all the not-so-good news interest rates continue to fall with the bellwether 10 yr note ending today about to test its recent low yield at 2.88% where it ran into resistance twice in the last month. Mortgage markets had a good week, a shame home buyers are on strike; can't sell to move up, can't qualify with the rigid underwriting, and most important, don't want to buy with the economy teetering.

The bulls on the economic recovery have a huge hurdle to spin this morning; the advance Q2 GDP report at 8:30 showed the US economy grew at 2.4%, not much lower than 2.5% consensus. The devil however lurked in Q1; in the data released this morning Q1 was revised from +2.7% to +3.7%, the revision took markets by surprise and made the economic decline in Q2 that much worse. In 2009 GDP was revised from -2.4% to -2.6%; 2008 revised from +0.4% to unchanged and 2007 revised from +2.1% to +1.9%. Will the lowered GDP revisions finally wake up markets and media that unless consumers spend the economy will not grow? Or will this data be swept under again in favor of corporate earnings as the economic driver?

After the very strong 5 yr auction yesterday most were expecting another strong bid for today's $29B 7 yr note. That wasn't the case however, the yield hit about 2 basis points higher than trading in the when-issued market this morning at 2.394%, the cover was 2.78 with indirect bidders taking 42.3% of it while the direct bidders were a non-factor taking just 9.0%. The market had been highly optimistic heading into the auction with trade looking for 2.375% right on the "when issued" mark. The previous, larger, $30B 7 yr auction saw a record 3.01 bid-to-cover ratio and an indirect bidder participation rate of 51% while seeing an about average 9.8% in direct bids. The 10-auction averages are 2.81 on the cover, 52.3% indirect bidder take and 9.7% for direct bids.

Weekly jobless claims is the only data point today. New unemployment claims totaled 457K -11K from a revised 468K last week, originally 464K. Unemployment claims are solidly at the 450K new unemployment filings each week. Continuing claims increased to 4.565 mil from 4.484 mil. Immediately the spinning started making every feeble argument that claims are doing better because they are not increasing; amazing! The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Those who’ve used up traditional benefits and are now collecting emergency and extended payments decreased by about 269,000 to 3.66 million in the week ended July 10. President Obama on July 22 signed into law a measure restoring unemployment benefits that were cut off.

Treasury hit a homer this afternoon on the results of the $37B 5 yr note auction; it was one of the best bid auctions in the past three weeks. The rate came at 1.796% much better than in the WI market this morning. A 3.06 bid-to-cover and an indirect bidder participation rate of 47.3% and 11.4% directs. The previous $38B 5 yr saw a higher 1.995% yield  jacking up the cost to the government. The 2.58 bid-to-cover and an indirect bidder take of 34.6% were light while the directs took 10.7%. The 10-auction average is a 2.64 cover and indirect take of 46%.

Financial markets opened a little soft in the equity trade and fractionally better for bonds and mortgages. At 8:30 June durable goods orders, expected to be up 1.0% fell 1.0%; excluding transportation orders a volatile component, durables were thought to be up 0.5% but were down 0.6%. The decline in orders added a little negative movement in the stock index futures, but not much. The 10 yr treasury and mortgage markets at 9:00 were up 4/32 and +4/32 (.12 bp) respectively. At 9:00 the DJIA futures -26. At 9:30 the DJIA opened -11, the 10 yr note +1/32, mortgage prices +3/32 (.09 bp).