Teasuries and mortgages opened a little lower in price this morning.  At 8:30 three economic reports somewhat confused traders; weekly jobless claims were expected to be down 2K but actually increased 13K to 463K with last week's claims revised from 445K to 449K. Continuing claims however did fall to 4.40 mil frm 4.51 mil in the previous week, declining continuing claims suggests many are now losing their unemployment benefits.  

Also at 8:30 Sept PPI was expected to be up 0.2%, it jumped 0.4% for the overall but when food and energy are extracted up just 0.1%. The overall increase is the second in a row that increased 0.4%.  An increasing debate is brewing around whether excluding food and energy is distorting inflation readings and should be ignored in favor of the overall inflation readings.


Finally at 8:30, the August trade balance, expected at $-44.5B, was $-46.3B. Of the three data points at 8:30 the trade deficit is the least concern.


The US dollar continues to weaken, lower again this morning against the euro and most other key currencies. It is a developing currency war between countries trying to beat down the value of their currency to increase exports and increase economic recovery. So far, based on today's August trade deficit it hasn't yet worked. The August deficit at $46.3B is evidence the US is importing more than exporting. Many believe one of the key thoughts at the Fed on QE 2 is a move to further lower the value of the dollar. There is some encouraging news out of China that it may be ready to let its yuan appreciate, the US has been pushing China to let its currency increase to level the playing field on exports and import prices. Overnight Singapore moved to increase its currency by widening its trading band, suggesting the beginning of China and US compromise on the currency battle that some worry may start a trade war.


The foreclosure mess that is boiling may have serious consequences for the recovery of the housing markets. New estimates from RealtyTrac that if foreclosures are halted for three months it would push the housing market recovery out another two to three quarters into 2014. One third of all sales have been distressed sales on foreclosures, that market is in jeopardy as states are evaluating their foreclosure laws and whether lenders have violated them; in the meantime investors and home buyers that have been buying up foreclosed properties are on hold until clarity on the validity of the titles can be certain. Top legal officers of all 50 states opened a joint investigation into home foreclosures, saying they will probe practices at banks and mortgage companies. The states will conduct a coordinated inquiry into whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures, Minnesota Attorney General Lori Swanson said yesterday in a statement. At Chase, CEO Jamie Dimon said he is sure Chase did not seize any properties illegally and that the costs of reviewing 115K files would be "incremental".


At 9:30 the DJIA opened -3, the 10 yr note -4/32 and mortgage prices at 9:30 off .06 bp.


Treasury will completes this week's borrowing at 1:00 this afternoon with $13B of 30 yr bonds. The 3 yr and 120 yr note auctions were somewhat disappointing but still saw good bidding. Today's 30 yr is hard to handicap; the 30 recently has been moving erratically compared with other treasury coupons.




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