Afternoon Report
Existing home sales came in higher than expected at 5.75 mln vs. 5.76 prior revised; however this data does not indicate an upturn in housing as existing home sales are down for a sixth straight month. Existing home sales remain on a steep downward slope since reaching 7.21 mln in Sept ’05. Equities took got an initial boost from the data before falling deeper into the red; currently DOW futures are down 59 points to 13350.
Treasuries are higher across the board with the 30yr yield at 4.863%, the 10yr at 4.592% and the 2yr at 4.247%. T-bill yields are higher on the day with the 4week yield at 4.67% out yielding both the 3 & 6 month. The FED injected $9.5 billion into the banking system with 10-day REPOS. Fed Funds have traded at the target 5.25% all day.
FED Fund Futures have recently reduced the likelihood of a near term Fed rate cut, though the Sept contract still factors in a full 25 BPS cut. The Dec contract shows an implied rate if 4.67%, which factors in two rate cuts before year’s end.
The ABX subprime index is lower on the day as subprime delinquencies continue to pile up. The USD Index is marginally higher after a steep drop the previous week. Credit concerns have boosted the safe-haven appeal of the USD, while giving strength to JPY through an unwinding of assets financed with borrowed JPY. USD/JPY is down 46 pips to 115.99; EUR/JPY is down 103 pips to 158.24 and GBP/JPY is down 94 pips to 233.60.
The Berliner Zeitung in Germany is reporting WestLB AG’s losses from speculative proprietary trades have increased to $682 million. WestLB said it could not estimate total losses as its investment were still being reduced. LBBW will reportedly pay € 300 mln to purchase SachsenLB with €250 provided in cash to help financial affiliates trying to sell commercial paper. SachsenLb received $23.7 bln in emergency funding in a bailout from exposure to US subprime loans.
The ECB set a tender for 7-day variable REFIs at a minimum 4% bid, saying the REFI allotment will exceed the €194 bln benchmark. Trichet said today that his Aug 2nd statement promising inflationary vigilance did not take into account recent market turmoil; mentioning an “ongoing normalization” in money markets. He declined to make a new assessment in regards to rates and relayed his desire to keep rate options open.
Energies are lower across the board with Crude lower by 63 cents to 70.45; Heating Oil is down 1.6% to 196.65 and natural Gas is dower 4.3% to 5.284.
Metals are mixed on the day. EUR/USD weakness has reduced the appeal of Gold and Silver as a hedge vs. USD as both are lower on the day. Copper traded as high as 348.47, however is now at the lower range of trading now up 1.5 cents to 336.45.