Need To Know News

Equities finished lower with Dow futures down 2% to 11354, S&P futures falling 1.4% to 1267 and Nasdaq futures off 0.1% to 1855.

S&P futures plummeted after the weak GDP data and high Jobless Claims number but erased its losses by midday. S&P futures then proceeded to sell off again, and made a new low of 1265 in the last hour of trading. Energy stocks were the biggest losers on the day, falling 3.8%. ExxonMobil fell 4.8% and Royal Dutch Shell lost 3.7%

At 8:30am EDT, July NonFarm Payrolls are expected to decrease 75k and the Unemployment Rate is expected at 5.6%. At 10am, June Construction spending is released, with a consensus estimate of a decrease of 0.3%. Also at 10am, July ISM is due, with a reading of 49 expected. Assistant Treasury Secretary Swagel speaks at 11am. In addition, July Auto Sales will be released throughout the day.

Bonds yields continue to come under pressure in electronic trade in response to extended selling pressure in equities as DOW futures are now down 2% to 11,315 and S&P futures are down 1.5% to 1,265.

Bonds are all trading near intraday highs in aftermarket trade with the yield on the 30yr down 7bps to 4.57%, the 10yr yield down 10bps to 3.94%, the 5yr yield down 13bps to 3.23% and the 2yr yield down nearly 13bps to 2.5%.

The short end of the curve is also very well bid with the 4week bill yield down 13 bps to 1.49%, the 3month yield down 2bps to 1.66% and the 6month yield down 6bps to 1.86%.

A slow afternoon in FX held the USD within narrow ranges vs. the major currencies with markets now focused on tomorrow’s July employment report which is expected to show a 75k drop in jobs. The USD Index is down 0.14% to 73.216, but is set to close in the upper portion of today’s range with support above the 9 and 21-Day moving averages. Fed fund futures surged following the unexpected jump in jobless claims and, despite a modest afternoon pullback, now show a 30% chance of a September rate hike from 36% yesterday.

EUR/USD touched 1.57 in the morning session, but was unable to break through resistance, and is currently testing support at 1.56. Cable was able to break through the 9 and 21-Day the moving averages (near convergence at 1.99) following this morning’s data, but has since returned to its opening level at 1.9817. USD/JPY, down 0.25% to 107.84, resisted slipping below the 9-Day moving average (107.60) in the morning session and is set to close in the mid to lower portion of today’s range.

Greenspan thinks housing prices will fall further and that the Government had to step in for Fannie and Freddie.  He also says the FNM, FRE public/private model will not work and sees both being “nationalized”.

The dollar was pushed lower in early N.Y. trade on Thursday, as sharply higher weekly jobless claims and a slightly softer than consensus Q2 GDP outcome saw USD bears initially take charge. EUR/USD spiked to highs of 1.5700, while USD/JPY slipped back toward 107.50. Softer oil prices, along with a better than expected Chicago PMI print, which saw that series return over the 50.00 boom/bust line for the first time since January, eventually led to a round of dollar short covering, which surprisingly, unwound all of the greenback’s early losses, and then some into noontime.

Bonds soared early on weak GDP and Initial Jobless Claims data, and maintained momentum throughout the day to finish near the top end of their ranges.

The long end performed best (after the Chicago PMI showed the highest Prices Paid reading since 1980), with the 30yr adding 24 ticks to yield 4.599% and the 10yr up 23, pushing its yield under 4% to 3.973%. The 2yr rose 7 ticks to yield 2.524%.

The 4wk bill saw plenty of buying interest, too, with Its yield was down 13bps to 1.52%, while the 1yr yield dropped 6bps to 2.26%. The 3-month bill ended up 1bp lower at 1.67% and the 6-month fell 3bps to 1.85%.

The energy complex finished near the day’s lows with Crude down 2% to 124.18, Unleaded falling 2.1% to 307, Heating Oil dipping 1.5% to 346.75 and Natural Gas off 1.4% to 9.12.

Crude was positive going into the open of floor trading but proceeded to drop soon after the bell to give back most of yesterday’s gains. Tomorrow, support lies at coincident lows of 120.40 and resistance is up at the 9-day moving average of 125.60.

Natural Gas spiked when EIA storage data came in lower than expected, but sold off for the rest of the session. Tomorrow, there will be support at the $9 level as well as yesterday’s low of 9.81. Resistance will be up at today’s high of 9.35.

$28.1bln of bids were submitted. The stop-out rate was 0.25%.

Earlier this month the Canadian Department of Finance announced new mortgage regulations designed to prevent a US-style housing meltdown. The rules require a minimum 5% down payment and a 35yr limit on amortization for government-guaranteed mortgages.

Banks loath to lose a chunk of the home-buying market have found a way to rebrand their old “zero-down” mortgages as “cash-back” products, whereby the bank loans the buyer the 5% down payment at a much higher rate and allows buyers 95% mortgage financing.

Since the mortgage loan itself meets the 95% maximum, it is eligible for government backing — thereby protecting the lender from default risk for the bulk of the loan.

This tricky new practice will be up for discussion at an upcoming meeting between banks and the Finance Department.