Daily Market Watch – Jan 29 2010

j0399693 “Bond prices are a little lower on the morning, but are up from earlier levels.

Gross Domestic Product came in better than expected this morning, which is weighing on Bonds and helping Stocks. In addition, both the Chicago Purchasing Managers Index and Consumer Sentiment were also reported better than anticipated, giving Stocks another boost.

For now, I recommend floating, as long as the Bond stays above the 200-Day Moving Average. But be prepared to lock if it falls below that level of support.

In other news, I’m hearing:

  • a better than expected GDP number is weighing on bonds and helping start stocks today on the upside
  • advanced GDP for 4th quarter rose 5.7% versus the expected 4.7% – the best since 3rd qtr 2003.  previous quarters advanced GDP were right around 3.5% and final readings left it at 2.2%
  • since the advanced reading is not the final reading, we may seem some adjustment in the final reading of the GDP in the next 2 months
  • consumer spending, the largest part of GDP declined over the previous quarter, in the absence of “cash for clunkers”
  • GDP advanced number may have come from rebuilding inventories and stocking shelves with inventory (GDP increases) while actual sales may not have increased indicating that of course the final GDP reading will likely be lowered from the advanced 5.7%
  • fed reserve purchased $12B in Mortgage Backed Securities this week bringing the total to $1.161T of the allotted $1.25T and according to the Feds, that program will end March 31st
  • Donald Kohn, fed Vice Chairman (second in command to Bernanke) commented he sees rates rising and is in essence warning banks by indicating they should read between the lines not to get too deep into carry trade – this comes after Wednesdays comment that rates will stay for an extended period of time – this may indicate the fed is laying groundwork for a rate hike sometime this year

for those wondering what carry trade is:

A trade where you borrow and pay interest in order to buy something else that has higher interest. For example, with a positively sloped term structure (short rates lower than long rates), one might borrow at low short term rates and finance the purchase of long-term bonds. The carry return is the coupon on the bonds minus the interest costs of the short-term borrowing. Of course, if long-term interest rates unexpectedly rose(and long-term bond prices fell as a result), the carry trade could become unprofitable. Indeed, if this occurred, there could be a number of investors trying to unwind the carry trade, which would involve selling the long-term bonds. It is possible that this could exacerbate the increase in long-term interest rates, i.e. push the rates even higher”

This is great information is from Jeff Harding at:

Wells Fargo Home Mortgage
319.368.1420 Tel
319.533.0136 Cell
866.870.2123 Fax
[email protected]

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