US Stock markets plunged yesterday after the House and Senate voted down the proposed $700 Billion rescue plan that called for taking illiquid assets off of financial firms balance sheets. The Dow Jones Industrial Average had its single worst loss in its 112 year history as the carnage was broad and hit every sector of the equity markets. In response, investors fled to the Bond market, but with most of the money being directed to the safe haven of the Treasuries and NOT Mortgage Bonds. You could see this clearly on the Bond page yesterday as the 10-year Note traded significantly higher while Mortgage Bonds traded just 28bp higher and well off the best levels of the day. Congress will be off the next day or so celebrating Rosh Hashanah - but they will likely be back to the drawing board on Thursday. Something has to get passed soon in order to help the beleaguered financial sector. As we've said before, let's hope political posturing doesn't stand in the way of quickly restoring confidence around the globe. The uncertainty in the financial markets has pressured the overnight LIBOR a staggering 430 basis points higher to 6.87%, the highest in 7 1/2 years, but also the highest spread above the Fed Funds rate in history. And yesterday's news caused the Fed Fund Futures to jump higher, as they now are pricing a 72% chance of a 50bp cut to the Fed Funds Rate in October - this from a 0% chance just a short while ago. Consumer Confidence was reported at 59.8, better than the 55.0 expected, and that is surprisingly good. Chicago PMI was 56.7, better than the 54.0 expected. These good reports gave Stocks a little boost higher, at the expense of Bonds. But stocks already had a positive bias this morning, as cooler heads saw an opportunity after the market decline looked overdone, especially seeing how stocks dropped like crazy in the last few minutes of trading yesterday. Resistance and Support are highlighted on the Bond Page to help us understand where prices can go before being halted (resistance) and where selling may stop (support). Amazingly, yesterday Mortgage Bonds had traded all the way up to touch the Resistance 2 level we identified at $101.31 and eventually settled back down below the closest ceiling at Resistance 1 at $100.50. The market remains volatile as prices are more than 100bp off yesterday's intra-day high. The Bond remains in a range between the aforementioned resistance and support at the 25-day MA at $101.09. Let's float carefully and see if prices can build on the bounce higher off support at the 25-day Moving-Average, which it has been riding of late. | 
-->
Email Me
