The MorningSnapshot- 07/27

The MorningSnapshot
July 27, 2012

Morning Commentary
Sentiment soared higher yesterday and continues to climb this morning on expectations the ECB may begin a new round of bond purchases to ease pressure on Italian and Spanish borrowing costs. This morning the U.S. 10yr benchmark rate climbed +4.5bps to 1.483% not even 10bps above the historic low of 1.387% reached earlier this week. European sovereign debt spreads to bunds have tightened significantly overnight; Spanish and Italian 10yrs are trading at 6.61% and 5.88% respectively. Equity markets around the world are in the green, with the S&P 500 up +0.36% and the Euro Stoxx 50 up +1.46% as of 9:45 EST; Asian stocks closed strongly higher.

The Interest Rate Environment – Rock Bottom Yet?
I’ve written the phrase, “… hit a record low/high yield,” so many times this month I can’t keep up anymore. In The WeeklySnapshot to be published this afternoon, I will be providing a recap of the records we’ve broken this week and their primary drivers.

Today’s Economic Data Lineup (EST)
8:30 am: GDP (Q/q), 2Q A, est. 1.4% (prior 1.9%)
8:30 am: Personal Consumption, 2Q A, est. 1.3% (prior 2.5%)
8:30 am: GDP Price Index, 2Q A, est. 1.5% (prior 2%)
8:30 am: Core PCE (Q/q), 2Q A, est. 1.8% (prior 2.3%)
9:55 am: U. Michigan Confidence, July final, est. 72.0 (prior 72)
11:00 am: Fed to sell $7.0b-$8.0b notes due 5/15/15-9/30/15

North America

  • U.S. economic growth expanded at a slow pace in Q2 as a weak job market prompted Americans to cut back on spending. GDP rose at a 1.5% annual rate after a downward revision from 3.3% to a 2% gain in the prior quarter; economists had estimated a 1.4% figure for Q2.  
  • U.S. prosecutors are preparing to file charges against traders from several banks, not just Barclay’s, who were involved in a bid-rigging scheme that manipulated LIBOR rates. Charges are likely to be filed by October, according to a person familiar with the matter.
  • The 30yr fixed-rate for the week ended yesterday fell to a record low of 3.49% from last week’s 3.53%.
  • ICE has announced plans to shut down floor trading of its options contracts in New York. After close of business Oct. 19, Intercontinental Exchange’s New York futures exchange will cease all floor trading of its options contracts, for good. The company went to electronic-only trading for its futures contracts in March 2008.
  • Initial jobless claims for the week ending July 21 dropped to 353K versus the median estimate that called for 380K; the 4-week moving average is at 367.3K and the prior week’s figure were revised up +2K to 388K.
  • June durable goods orders rose +1.6% versus the estimate of 0.3%; ex-transportation the figure fell -1.1% versus the +0.1% estimate.

Europe

  • Spanish unemployment rose to 24.6% in the 2Q, the highest figure on record, versus 24.4% in 1Q after PM Rajoy made it easier to fire workers amid the implementation of the steepest budget cuts in the country’s democratic history; Q2 figures were in line with the median forecast of economists surveyed by Bloomberg.
  • Citigroup analysts say there’s a 90% chance that Greece will leave the euro in the next 12 to 18 months on the basis that the new government has yet to put an effective austerity plan in place.

Asia

  • Japan’s consumer prices fell unexpectedly and retail sales fell short of analysts’ forecasts as a strengthening yen and austerity measures in Europe hit exports.  
  • Thailand industrial output slipped more than economists has expected as weakening global demand hindered companies still recovering from last year’s floods. The industrial production index dropped -9.6% in June from a year earlier after a revised +6% expansion in May; the median estimate of seven economists in a Bloomberg News survey was for a decline of -0.8%.

“The only good luck many great men ever had was being born with the ability and determination to overcome bad luck.”
-Channing Pollock
____________________________
Taylor Anderson
Business Analyst
Clearing House

T 312 634 8902
F 312 930 3187
C 312 618 8339

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