Vital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1374.5 | -3.8 | -0.28% |
| Eurostoxx Index | 2312.0 | -15.8 | -0.68% |
| Oil (WTI) | 102.1 | -0.6 | -0.58% |
| LIBOR | 0.466 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 79.54 | -0.002 | 0.00% |
| 10 Year Govt Bond Yield | 1.95% | -0.03% | |
| RPX Composite Real Estate Index | 172.8 | 0.6 |
Markets are flattish after a successful Spanish bond auction and generally good earnings reports from a slew of companies. Bank of America and Ebay were standounts. Spanish bond yields are starting to increase and the Spanish equity market (The IBEX) is under pressure. US Treasuries and MBS are flat to up.
US Leading economic indicators fell. The Philly Fed Business Outlook Survey noted regional manufacturing activity expanded modestly in April, but fell slightly from the previous month. Both indicators seem to imply the economy is still expanding, but not as rapidly as a few months ago. Existing home sales fell to 4.48 million.
The press is pointing out the strong demand for the Spanish bond auction. As Bill Gross mentioned, banks are buying all of the excess supply in the Spanish bond auctions, which he views as artificial demand. The interesting question is that sovereign bonds are treated as riskless assets for bank capital requirements. If it turns out they are not riskless... Investors are noticing, and bidding up credit default swaps for Spanish banks.
Initial Jobless claims came in at 386k, ahead of the 370k expected. Last week was revised upwards. Interestingly, when I re-ran the data series, the government had revised virtually every week up from the beginning of the year. Not sure what is going on there..
A University of Chicago economist gives a theoretical explanation why principal reductions are better for borrowers than interest rate mods which merely lower the payment. In effect, mods which target a percent of income (usually 31%) end up penalizing workers as they earn more - in effect they can be hit (in theory) with a 100%+ marginal tax rate. Not sure I buy the idea that this is influencing behavior, but it is an interesting take on payment vs principal mods.
The National Association of Home Builders weighs in on tax policy, urging Congress to increase certainty (read: extend the Bush tax cuts) into the tax code. As the economy slows, Washington will come under increasing pressure to push the 2013 tax hikes further into the future.
Do the government's inflation numbers seem to not jibe with your actual bills? One explanation is the change in methodology over the years. Someone went to the trouble of recalculating inflation using the older methodology, and unsurprisingly, it is higher. The government disagrees.
Chart: Initial Jobless Claims:
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