MBS CLOSE: Like Friday Never Happened
Strong Chinese manufacturing data followed by a better than expected Eurozone PMI print coupled with "recession may be over" comments from Alan Greenspan set the tone early today...even before most domestic traders hit the snooze button for the first time this morning. Add more "better than expected" economic reports early in the US session and in the flash of a data print...benchmark had TSYs returned to Friday's opening marks...which we will call "status quo". It was like the Friday rates rally never happened...
In mortgageland the theme was the same. Notice the slow and steady trend channel on Friday leading into today's open...then the floor dropped out from under us. The fall was quick...but strong support was found near Friday's opening marks. "Rate sheet influential" MBS coupons returned to "status quo". It was like Friday never happened...
Speaking of status quo...lets go BIG PICTURE.
After crossing 1,000 today, the S&P has officially returned to pre-October price levels. Remember last October? The entire banking system was on the verge of collapse, Lehman, AIG, Fannie, Freddie had all just failed. Well, after today, its like the October to March sell off never happened. The S&P is now back to status quo...
With markets back to status quo...NOW WHAT?
August is historically the SLOOOOOOWEST of all months on Wall Street...its hard to believe any major market moves might occur when so many market participants are on vacation.
In regards to stocks...much should be psychological as the return to pre-systematic failure levels will bring about new questions and a whole new perception.When considering how this will affect TSYs and MBS...we will stick to the same thing we've been saying all summer...the WAIT AND SEE RANGE BOUND TRADE.
When considering the short road ahead....I'm not an equity analyst but I can tell you that I noticed some profit taking as the S&P approached 1,000 earlier today....I noticed selling into strength!!! Although stocks eventually closed near the highs of the day...juuuust maybe the return to status quo will begin to bring about a feeling of "NOW WHAT" for equity traders. Maybe the return to status quo will serve as a slowing point for the runaway freight train.
(btw if you're looking for the fundamentals behind why the dollar had a bad day..economic data around the globe was better than expected. It was an unwinding of "flight to safety" positions in US currency)
For TSYs and MBS...it appears that many positions that have influence over "rate sheet influential" MBS were closed out today as profit takers emerged overnight and remaining sellers got stopped out after the 10am data print. That leaves us believing that traders are open to a little "follow the leader"....A DAY TRADER'S DELIGHT. I think I outlined the events that will likely keep TSYs and MBS range bound in MBS LUNCH and MBS AFTERNOON . Check em out if you missed em.
Tomorrow is a busy day...
FOR DISCUSSION:
I wont comment on TB&W's run in with the Fed today because I am not up to date on the details...but I can say this:
If I was selling loans to them Id be a bit worried about getting my purchase advice (funding) in a timely manner.
Their CEO has been quite vocal...lets wait and see what he has to say before making any assumptions.