Friday, 7/30/10 4:09 pm

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.

In Economics 101 back in the day, I had a prof (yes, in my day professors actually taught freshmen) start the class with the age old comment that statistics can be turned anyway to achieve any end result. A fig leaf to those that chose the dismal science not to worry, that all will be right if it is framed correctly. This morning's Q2 advance GDP report headline at +2.4% was fractionally lower than +2.5% expected and lower than +2.7% in Q1. But, alas; it was time for benchmark revisions going back to 2007 and in the revisions Q1 was revised from +2.7% to +3.7%----soooo----we can take the Q2 advance 2.4% GDP and say without blinking that since Q1 was revised higher, then Q2 was actually much better than had been thought since it is based on the change from Q1. No wonder confusion is running wild.

Next week August begins, normally dog days for the financial markets with the deep pocket bankers and Wall Streeters off to vacation while America struggles. This year however may be different; the big money will still be at the beach but markets are not likely to sit still given the knife edge they presently sit on. At the end of next week the July employment report will be out, current early estimates are for non-farm payrolls to have declined 116K (most will be census workers) with the unemployment rate at 9.6% from 9.5%. Those headlines belie the real unemployment however; when discouraged workers and those that are working at less than their capabilities are brought in unemployment is still 17% and hasn't budged for months. 

This week interest rates continued to fall; stocks continued to improve slightly. The 10 yr note yield fell to 2.90% down 10 basis points, the 5 yr 1.59% down 14 basis points, the 2 yr at 0.55% -4 basis points. Mortgage rates on 30s fell 11 basis points. The DJIA ended +42, NASDAQ -15 and S&P unch. Gold -$17.00, crude oil unchanged.  

Next week's calendar has much to chew; June personal income and spending, the July ISM manufacturing index,  ISM services sector index, the July employment report and June consumer credit. Mixed in July auto and truck sales, June factory orders and weekly jobless claims. Every data point has substance and has the potential to increase intraday volatility.

The 10 yr note is ending the week at critical lows; 2.90% with two prior runs to 2.88%. Monday may see some backing up but eventually, sooner rather than later the note will break below recent low yields and head toward 2.50%. Is it a good thing? No! low rates are nice but too low are not good. 

PRICES @ 4:00 PM

10 yr note:                         105.00 +21/32 2.91% -8 BP

5 yr note:                           100.23 +10/32 1.60% -6 BP

2 Yr note:                           100.04 +2/32 0.56% -2 BP

30 yr bond:                        106.27 +54/32 3.98% -10 BP

Libor Rates:                       1 mo 0.305%; 3 mo 0.453%; 6 mo 0.667%; 1 yr 1.036%

30 yr FNMA 4.0 Aug:         102.15 +6/32 (.18 bp) (-3/32 (.09 bp) frm 9:30)

15 yr FNMA 3.5 Aug:         102.25 +4/32 (.12 bp) (-2/32 (.06 bp) frm 9:30)

30 yr GNMA 4.0 Aug:        103.05 +7/32 (.22 bp) (-2/32 (.06 bp) frm 9:30)

15 yr GNMA 3.5 Aug:        102.25 -9/32 (.28 bp) (-11/32 (.34 bp) frm 9:30) (no market)

Dollar/Yen:                       86.41 -0.47 yen

Dollar/Euro:                     $1.3049 -$0.0027

Gold Aug:                         $1181.00 +$12.60

Crude Oil Sept:                 $78.95 +$0.59

Goldman-Sachs

Commodity Index:           524.81 +6.40

DJIA:                               10465.94 -1.22                

NASDAQ:                         2254.70 +3.01

S&P 500:                         1101.60 +0.07