US stock markets started a little
better this morning after the 320 point decline in the DJIA in the last two
days. Taking a breather in what is likely more selling to come. The
10 yr sits about unchanged with MBS prices down fractionally. It is all about
how stocks perform in terms of how the bond and mortgage markets will trade.
The bellwether 10 yr note meanwhile ran into its resistance yesterday at 2.70%;
the note is in an essentially 10 bp range since late January with a couple of
forays below 2.70% that didn’t last more than three sessions. To crack the
2.70% level it will require the stock market to continue its bearish near term
outlook, any rallies in the key indexes will keep interest rates from
improving.
The IMF adding additional concerns
about the lack of inflation; “There are important
risks that inflation will turn out even lower than forecast.”. “Inflation
expectations may drift lower,” which “in turn would lead to higher real
interest rates, aggravate the debt burden, and lower growth.” The risk of
deflation, which the IMF sees at 20% by the end of the year, comes as the euro
region’s economy is expected to grow for the first time in three years
following its sovereign-debt crisis. In the EU the IMF is forecasting growth at
1.2% this year, up from 1.0% in the January forecast. Germany, the strongest
economy in the EU is expected to see 1.7% growth this year, slightly better
than in January.
This week is thin on key economic
reports
Interest
rates are at key resistance levels now; to further the recent improvements the stock market has to decline.
After the last two sessions of selling it wouldn’t be unusual for the indexes
to improve today. The outlook though is bearish, we are looking for the DJIA to
fall as much as 1000 points in the current trend. 1000 points isn’t much with
the index at 16K but enough to push interest rates lower if my prediction is
correct. The technicals are presently positive on the 10 although the note is
still trapped in its very tight range.
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