Economic Stimulate or Stimu-too-late?
By Frank Bocchino
Is the tax cut portion of the proposed stimulus package proposed by the President-elect yesterday enough to stimulate the economy in the face of some bad news? Futures correctly suggest that the S&P 500 index will open higher. And before the market's open, Dow Jones industrial average futures rose 63 points to 8,981. Standard & Poor's 500 index futures rose 7.50 points to 934.90, and NASDAQ 100 index futures rose 15.75 points or 1.25%. Will these rises erase the losses from yesterday? It should, if the world market and Treasury are good indicators, but that's only half the story as today is a day of contradictions.
World stock markets rose strongly today ahead of expected gains on Wall Street and amid some bright reports from British retailers. The FTSE 100 index of leading British shares was up 66.90 points, or 1.5%, at 4,646.54, while Germany's DAX rose 1.7%, to 5,066.63. France's CAC-40 rose 49.71 points, or 1.5%, to 3,409.63.Yields on notes and bonds climbed after President-elect Barack Obama told House Speaker Pelosi yesterday he favors a $775 billion economic package. This year's note sales begin with $8 billion of 10-year Treasury Inflation Protected Securities. The Treasury Department reports it has invested $15 billion in another seven banks, including two companies that recently completed takeovers of other banks. Seven banks, including two involved in takeovers, are recipients of $15 billion in funds included are PNC Financial Services Group, which is taking over National City Corp., Fifth Third Bancorp, which is buying Freedom Bank, CIT Group, SunTrust Banks and three smaller banks.Spreads on mortgage-backed securities have improved in response to the New York Fed's announcement that it has begun purchases of fixed-rate mortgage-backed securities, but the underlying impact on primary mortgage rates has thus far been muted. The Fed's involvement in the market has caused the spread between 30-year mortgages and 10-year Treasury notes to decline by about 0.1% to to 1.62%, according to research at Deutsche Bank.In a better-than-expected reading, the Institute for Supply Management, reports its services sector index rose to 40.6 in December from 37.3 in November.U.S. mortgage bonds without government support rose last month thanks in part to efforts by the Federal Reserve and Treasury Department to lower home-loan rates boosted investor demand. Fed officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending. The government has sought to reduce home-loan rates through purchases of agency mortgage bonds (those guaranteed by Fannie, Freddie and Ginnie Mae). Non-agency mortgage-backed securities are getting a boost because foreclosure sales may be less costly and more borrowers may be able to refinance.And it's needed as the National Association of Realtors, homes under contract to be sold fell 4% in November. The Pending Home Sales Index fell to 82.3 in November to its lowest level since the series began in 2001. Today's home-sales report showed declines of 7.2% in the Northeast, 6.7% in the Midwest and 2.4% in the West. Pending sales fell 2.2% in the South. LionMTS
The Treasury Department reports it has invested $15 billion in another seven banks, including two companies that recently completed takeovers of other banks. Seven banks, including two involved in takeovers, are recipients of $15 billion in funds included are PNC Financial Services Group, which is taking over National City Corp., Fifth Third Bancorp, which is buying Freedom Bank, CIT Group, SunTrust Banks and three smaller banks.
Spreads on mortgage-backed securities have improved in response to the New York Fed's announcement that it has begun purchases of fixed-rate mortgage-backed securities, but the underlying impact on primary mortgage rates has thus far been muted. The Fed's involvement in the market has caused the spread between 30-year mortgages and 10-year Treasury notes to decline by about 0.1% to to 1.62%, according to research at Deutsche Bank.In a better-than-expected reading, the Institute for Supply Management, reports its services sector index rose to 40.6 in December from 37.3 in November.
U.S. mortgage bonds without government support rose last month thanks in part to efforts by the Federal Reserve and Treasury Department to lower home-loan rates boosted investor demand. Fed officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending. The government has sought to reduce home-loan rates through purchases of agency mortgage bonds (those guaranteed by Fannie, Freddie and Ginnie Mae). Non-agency mortgage-backed securities are getting a boost because foreclosure sales may be less costly and more borrowers may be able to refinance.
And it's needed as the National Association of Realtors, homes under contract to be sold fell 4% in November. The Pending Home Sales Index fell to 82.3 in November to its lowest level since the series began in 2001. Today's home-sales report showed declines of 7.2% in the Northeast, 6.7% in the Midwest and 2.4% in the West. Pending sales fell 2.2% in the South.
LionMTS
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