Afternoon Report
Q2 Annualized GDP came in at 4% just under the 4.1% estimate and ahead of the Q1 reading of 3.4%. Q2 GDP Price Index fell in line with expectations at 1.4% and Q2 Core PCE came in at 1.3%. A pickup in exports and business spending helped hasten US economic growth to its quickest pace in over a year. The focus now shifts to Q3 GDP inputs to determine the effect of downside risks to growth including credit issues. Strong Q2 growth should help protect the US economy from recession, though it remains to be seen the effects of recent credit market turmoil on growth.
The Q2 Home Price Index came in lower than expected at 0.1% vs. the prior revised reading of 0.6%. This 0.1% rise in home prices is the lowest increase in over ten years as housing demand remains weak. Thornburg Mortgage has raised $500 mln in cumulative redeemable preferred stock offerings with $473 mln in net proceeds to the troubled lender.
Freddie Mac’s CEO mentioned the company is “not immune to market forces”; though he says credit issues will likely subside in 18 months. Freddie and OFHEO are in agreement that lifting Freddie’s investment cap would provide a “public policy benefit”. Freddie’s Q2 net income dropped 45% mostly due to loan defaults.
H&R Block is reporting $302 mln in Q1 losses due to subprime. H&R plans to sell its Option One Mortgage Corp. to Cerberus Capital by the end of the year; H&R might shut the unit if the deal falls through.
Moody’s announced today that the risk of “thrombosis” in the market has diminished saying that banks have enough liquidity and that threats to the global banking system have been overstated.
The FED reported short term debt dropped $62.8 bln the prior week with ABCP dropping 5.6%. The FED added $10 bln to the banking system and FED funds are trading at the 5.25% target. T-bill yields are significantly lower across the board with the 4-week dropping 39 BPS to 3.60% and the 3-month down 39 BPS to 3.61%. This drop may be due to yesterday’s letter from Bernanke to senator Dodd saying that the FED is ready to act as needed. Sept FED Fund Futures indicate a full rate cut with a 56% chance of a cut to 5% and a 44% chance of a cut to 4.75%. The Dec contract shows an 80% chance of a cut to 4.5% by year’s end.
The USD is mixed on the day, up 29 pips vs. EUR. JPY is having across the board success gaining 43 pips vs. USD and 90 pips vs. EUR.
Crude is marginally lower to 73.45; Unleaded is down 2% to 205.87 and Heating Oil is down a quarter of a cent to 203.91. The EIA Natural Gas storage change showed a build of 43 BCF, in line with estimates. Natural Gas is higher by 19 cents to 5.76.
Gold is down 1.10 to 674.30; Silver is down 2 cents to 11.99; Platinum is down 4.30 to 1262.5 and Copper is up a quarter of a cent to 334.6.
ABC is reporting nerve gas was discovered in a UN office building near the UN’s Headquarters. Apparently the gas was used to calibrate instruments by weapons inspectors in Iraq and was supposed to have been destroyed.