by Sigma Research
Treasuries and mortgages opened a little soft this morning with the pre-market trade in equities pointing to a better open at 9:30. Stocks look better, with European shares rebounding from a three-month low, and the euro strengthened as the Greek government prepared to face a confidence vote that may determine whether it avoids a default. Oil and palladium gained in Europe. Today's vote of confidence in Prime Minister George Papandreou is likely to determine how soon the nation can win international aid to shore up its finances. European Union leaders have insisted he gain multi-party support for austerity measures that are a condition for the aid needed to avoid default as soon as next month. The all-critical vote will occur at 5:00 pm eastern time this afternoon and one way or the other overnight markets will likely be volatile; a positive vote will likely cause selling in the US bond and mortgage markets as safety trades are lifted.
The IMF, contributor of a third of the bailout money for Greece, Ireland and Portugal, has warned European leaders that a failure to take decisive action on the debt crisis risks triggering "large global spillovers." At the same time, Papandreou is struggling to convince Greeks to accept a 78 billion-euro ($112B) package of state-asset sales and budget cuts, which include a "crisis levy" on wages.
Today the Fed begins its FOMC meeting; nothing will occur today, tomorrow the meeting concludes with the release of the p[policy statement at 12:30 then at 2:15 Bernanke will hold the second press conference immediately after an FOMC meeting. There will be a lot of chatter today and tomorrow about what the Fed may do now that QE 2 will end at the end of next week. Markets are very much like a coffee clutch where everyone sits around and gossips; in the end what the Fed may or may not do is very uncertain so al the chatter we have to endure today should be ignored. NO sense in sweating something that is totally unknown by anyone----just a lot of talk.
At 9:30 the DJIA opened +44, the 10 yr note at 9:30 -4/32 at 2.97% +1 bp and mortgage prices -2/32 (.06 bp). The S&P and NASDAQ also higher on the open. Crude oil up this morning on optimism that the Greek vote will go well and bolster economic improvement in Europe.
The only economic report today; at 10:00 a few minutes ago, May existing home sales were reported. Markets were looking for a decline of 5.0% to 5.8%; sales were down 3.8%. Single family sales down 3.2%; the median sales price $166,500, down 4.6% yr/yr due to distressed sales. According to NAR there is a 9.3 months supply on the market, slightly higher than in April. The headline looked good but the details (9.3 months supply) not so good and banks still sitting on thousands of foreclosed houses. As long as our government refuses to make housing the key to US economic recovery there is little chance of any significant employment improvement. Barney the Frank should go down in infamy.
Technically still bullish in the bond and mortgage markets, however the strength is weakening some. If Greece passes a strong deficit cutting bill with a wide margin the bond and mortgage markets will likely see rates increase a little taking away the recent safety moves to US treasuries from investors around the world. Equity markets will likely improve as a reaction if the vote is strong. The widely anticipated vote will not happen when our exchanges are open but that won't affect trade in computer trades.