Interest rate markets were weak on Friday with the stock market running higher (DJIA +198); this morning the early action has the treasury and mortgage markets starting better with the key equity market indexes also pointing to a better open at 9:30. There are no economic reports today to think about; at 1:00 Treasury will auction $36B of 2 yr notes that should meet with strong demand.


US equity markets are being supported this morning on continued improvement in European stock markets. Some minor enthusiasm today on comments from Japan that it will introduce a stimulus plan soon. Japan is considering compiling a stimulus package totaling as much as 4.6 trillion yen ($54.6B) that will be funded with existing revenue, a government official said. The US and global economic outlook has improved in the last two weeks; back to the optimistic outlooks that were prevalent last Spring before June and July data showed the economy stumbling. While there hasn't been much to cheer about in the data, the financial markets are being fueled by last week's comments that the Fed will ease more to keep the economic recovery moving forward. Although the stock market had a good week last week and a very strong Sept comparatively speaking, the volume of trading remains thin, investors of size are still reluctant to commit to equities.


Housing and consumer spending continue to lag; unemployment, the lack of job stability, declines in personal wealth with home prices falling or at best flat will likely continue to keep consumers cautious in their spending and in turn keep the US economy struggling in the recovery. Last week the NBER said the recession ended in June of 2009 and Started in the fall of 2007. It amazes that so many actually take that seriously; economists at times live in another world of theory. The recession lives regardless of what a bunch of economists think; it may not be textbook in terms of definitions, but reality always trumps theory.


This Week's Economic Calendar:


             1:00 pm $36B 2 yr note auction


             9:00 am Case/Shiller home price index (+3.4%)

            10:00 am Sept consumer confidence (52.9 frm 53.5)

            1:00 pm $35B 5 yr note auction


            7:00 am weekly MBA mortgage applications

            1:00 pm $29B 7 yr note auction


            8:30 weekly jobless claims (-8K to 457K)

                   Q2 final GDP data (+1.6%, unch frm the advance report last month)

            9:45 am Chicago purchasing managers' index (56.0 frm 56.7 in Aug)


            8:30 am Aug personal income and spending (+0.3% on both)

            9:55 am U. of Michigan consumer sentiment index (67.1 frm 66.6)

           10:00 am Sept ISM manufacturing index (54.5 frm 56.3)

                         Aug construction spending (-0.5%)

           2:00 pm Sept auto and truck ales (autos 3.8 mil, trucks 4.9 mil)


The stock market opened weaker this morning after a huge rally on Friday. Interest rates overall continue to improve; mostly treasuries but the decline is helping keep mortgage rates from increasing. Last week treasury yields fell while mortgage rates continued to remain stable with not much improvement. This week may be the same; the 10 yr note in our view is destined to eventually test their recent (Aug) lows as long as the belief the Fed will stimulate more. Of course it is data-dependent; better economic data in the next week or two will take away the present idea that the Fed will ease further.


Treasuries and mortgages started better this morning; we are not expecting much additional improvement through the rest of the session. Nothing out there to move them, stocks or the rate markets.


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