US INTEREST RATES
10-year T-note prices extended their 6-month downmove to a 7-3/4 month nearest-futures low before recovering and have now corrected 62% of their 3-year bull-run to December’s all-time high. The 10-year T-note yield fell to a 3-week low of 3.57%, -43 bp below the recent 8-1/4 month high of 4.00% that was a near doubling (+196 bp) of December’s post-war record low yield of 2.04%. Bearish factors for T-note prices include (1) the Fed keeping its $1.75 trillion bond-purchase program unchanged following the conclusion of its FOMC meeting, squashing speculation the Fed would increase its quantitative easing program to stem the rise in longer-term Treasury yields, (2) the unexpected upward revision to US Q1 GDP (-5.5% q/q versus expectations of no change at -5.7% q/q), and (3) the unexpected gain in May US durable goods orders (+1.8% and +1.1% ex transportation versus expectations of -0.9% and -0.5% ex transportation). Bullish factors include (1) the post-FOMC statement that said the Fed expects inflation to stay "subdued for some time," and (2) the prediction from HSBC Holdings Plc that “the post-bubble economic backdrop is likely to result in both persistently high unemployment and low inflation,” and as a result, borrowing costs “are not going up anywhere, anytime soon.”
FOMC expectations—Market expectations in the past week were pushed back slightly for Fed interest rate hikes. The market is expecting the funds rate to stay below 0.25% until September. The market then expects the funds rate to rise to 0.50% by Feb 2010 and to 1.00% by July 2010.
US STOCK INDEXES
The S&P 500 index corrected down to a 3-1/2 week low from its recent 7-1/2 month high that was a 32% recovery of the 1-1/2 year plunge from its all-time high down to March’s 12-1/2 year low. On that 12-1/2 year low, the S&P 500 had fallen 56% from the Oct 2007 all-time high. Bearish factors for stocks include (1) the prediction from the OECD that average unemployment in its 30 member nations will reach 9.9% by the end of 2010, the highest since the 1970s, and (2) the report from InsiderScore.com that executives at US companies have been net sellers of stock for 14 straight weeks, a 2-year high, which may indicate company insiders don’t expect their businesses to be able to support current stock price levels. Bullish factors include (1) signs that the economy may be recovering from recession after May US durable goods orders unexpectedly rose with ex-transportation durable goods orders posting their first back-to-back increases in more than a year, and (2) the post-FOMC meeting statement which said the funds rate will stay at "exceptionally low levels" for an "extended period,” dampening any fears of imminent Fed rate hikes.
The S&P 500 index corrected down to a 3-1/2 week low from its recent 7-1/2 month high that was a 32% recovery of the 1-1/2 year plunge from its all-time high down to March’s 12-1/2 year low. On that 12-1/2 year low, the S&P 500 had fallen 56% from the Oct 2007 all-time high. Bearish factors for stocks include (1) the prediction from the OECD that average unemployment in its 30 member nations will reach 9.9% by the end of 2010, the highest since the 1970s, and (2) the report from InsiderScore.com that executives at US companies have been net sellers of stock for 14 straight weeks, a 2-year high, which may indicate company insiders don’t expect their businesses to be able to support current stock price levels. Bullish factors include (1) signs that the economy may be recovering from recession after May US durable goods orders unexpectedly rose with ex-transportation durable goods orders posting their first back-to-back increases in more than a year, and (2) the post-FOMC meeting statement which said the funds rate will stay at "exceptionally low levels" for an "extended period,” dampening any fears of imminent Fed rate hikes.
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