Closing Comments
Trading featured range-bound volatility as the DOW and S&P oscillated between positive and negative all day before selling near the close. Q2 GDP came in line with estimates at 4.0%, the highest level of growth in a year. Personal Consumption rose slightly to 1.4% and GDP Price Index held steady at 2.7%. The strong GDP leaves the US economy in a better position to deal with ongoing credit problems.
The House Price Index came in below estimates at a 0.1%, the lowest rate of growth in a decade. The report is further evidence of housing weakness; as rising inventories are likely to further deteriorate home values.
Thornburg raised $473 million from the offering of 20 million shares of 10% Series F cumulative convertible redeemable preferred stock. This helped the company’s stock price soar more than 15% before giving back some of the gains to close up around 7%. The company said the additional liquidity should help to return to normal operations. The firm resumed issuing new mortgages on Monday.
H&R Block plans to exit the subprime mortgage business, selling their subprime unit to Cerberus Capital by year-end. The firm says it intends to be out of mortgages by December 31 and if the Cerberus deal falls through, it will likely shut its Option One Mortgage unit.
Freddie Mac, the nation’s second largest home lender, announced its second-quarter profits fell 45% from a year ago due to increasing defaults. The company was forced to set aside $320 million for losses due to the ongoing credit crunch. CEO Richard Syron says that the company “was not immune to market forces” and continues to “take a cautious view toward the housing market.”
Moody’s announced today that banks have sufficient capital and that the global bank threat was largely overstated.
The Fed added $10 billion to the banking system via 6- and 14-day Repos. Fed Funds traded at the Fed’s 5.25% target rate all day. Fed Fund Futures are higher implying an increased likelihood of a FED rate cut. T-bill yields dropped today on a flight to short-term safety in the midst of another turbulent day in equities.
Barclays said today that there are no liquidity issues in UK markets, saying that the bank is “flush with liquidity.” Barclays also said that the BOE standby facility “is there to facilitate market operations in such circumstances.”
The EIA Natural Gas Storage report came in right on analysts’ estimates at a build of 43 BCF. Natural Gas finished the day up a dime to $5.68, while other energies were all down less than 1%. Metals finished the day in the red across the board, but again the declines were modest and all below 1%.
All eyes tomorrow will be pointed towards Jackson Hole Wyoming, where FED Chairman Ben Bernanke speaks at the Kansas City Fed’s Economic Symposium.
Tomorrow we’ll bring you July Personal Income and Spending from Commerce at 8:30am, the market is expecting Income to come in at 0.3% following a reading of 0.4% for June. At 10:00am we’ll bring you July Factory Orders; analysts expect an increase of 3.3% after a reading of 0.6% in June. Tomorrow also brings us the August Chicago Purchasing Manager Index at 9:45am, it’s expected to see a slight decline to 53.0 after a July reading of 53.4. Final UofM Consumer Confidence for August comes out at 10:00am and NAPM-Milwaukee also is released at that time.