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Anthony Hood

Equity Investment Capital

Office: 949-891-0067

Email: tony@equityinvestmentcapital.com

website: www.equityinvestmentcapital.com

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Monday, June 07, 2010

Started a little soft early in the rate market this morning with the stock index futures a little higher after the heavy and deep selling on Friday after the May employment report shook investors. All through last week the estimates were continuing to increase on the number of jobs created in May. Thursday in an unusual comment from a sitting President ahead of a key data point, Obama commented that the US was creating jobs at an increasing pace, that remark elevated estimates even more on the idea he knew the job market had improved. When the data hit, jobs were hardly increased except census workers; the reaction was swift with the stock market falling 323 points and interest rates fell on safe haven moves. The 10 yr note yield plunged 17 basis points and mortgage rates down 8 basis points.

At 9:30 the DJIA opened +20 points, the 10 yr note unchanged at 3.20%; mortgage prices at 9:30 -1/32 (.03 bp).

Not much in the way of critical economic data this week; May retail sales on Friday is this week's headliner. Treasury auctions and the Fed Beige Book are on tap but it it will be mostly how the stock market performs this week that will set the tone for all markets. Treasury will sell (borrow) $70B in 3 yr, 10 yr and 30 yr auctions on Tuesday, Wednesday and Thursday.

Europe's problems with debt issues still dominate; Friday it was Hungary, the latest to grab attention on remarks from the new political leaders in the country. The euro currency continues to fall against the dollar and hurting our exports to the region. The euro is at a 4 yr low against the dollar and will likely continue to decline as sovereign debt issues in the EU appear to not be totally revealed yet. Over the weekend cooler heads in Hungary have denied it is in the same boat as Greece, recanting their tape bomb comments that sent global markets down. Hungary’s domestic politics roiled global markets last week as officials in new week-old government compared the country to Greece while claiming the previous administration lied about public finances. The comments were flashed around the world by the news media, feeding concerns Europe’s sovereign debt crisis was spreading.

At 3:00 this afternoon April consumer credit, the only scheduled data today, is expected to be be up $1.0B; a drop in the bucket but improving from monthly declines a few o months ago of $15B a month.

This Week's Economic Calendar:

Tuesday;

1:00 pm $36B 3 yr note auction

Wednesday;

7:00 am Weekly MBA mortgage applications

10:00 am Apr wholesale inventories (+0.5%)

1:00 pm $21B 10 yr note auction

2:00 pm Fed's Beige Book

Thursday;

8:30 am weekly jobless claims (-3K)

Apr trade balance (-$41.2B)

1:00 pm $13B 30 yr bond auction

2:00 pm May Treasury budget balance (-$140B)

Friday;

8:30 May retail sales (+0.3%, ex autos +0.1%)

9:55 U. of Michigan consumer sentiment index (74.8 frm 73.6)

10:00 Apr business inventories (+0.5%)

At 10:00 the stock market was managing to hold a slight gain, the rate markets were essentially unchanged and completely focused on the equity markets, as has been the case now for a month. Europe's issues have increased the debate about the outlook for global and US economies; hearing the double dip fears. Although the equity markets are now technically bearish, the chatter remains that this is a buying opportunity; we don't think so but The Street has to talk up the economy. Wall Street doesn't do well when the trend in stocks is down or uncertainty is high as it is currently.

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