The selling which entered the market late yesterday has carried forward today. Goldman Sachs released 2nd quarter earnings this morning, blowing away the pre-release estimates by nearly a dollar and a half. Top line growth was respectable as well, posting over 13 billion for the quarter. Johnson and Johnson also released, beating the street by .04 cents a share. Both have helped stocks to hold yesterday’s gains as the Dow is currently down 2 points. PPI rising 1.8% (core up .5%) and Retail Sales up .6% are the culprits behind the rise in yields and worsening mortgage pricing.
Looking into the numbers, this is all about petroleum products and not viewed as sustainable going forward. Nonetheless, the 10 year note is off 23/32’s trading at 3.44%. This is a critical area (3.45%) which marks the 8 day moving average. We’d like to think this is as far as it goes (worsening mortgage pricing) but warn you that being “cautiously optimistic” is as far as we’re willing to stick our neck out. “If” we close at 3.46% or higher (day end), expect the next stop to be 3.57%, putting the hurt on mortgage backs for about another .50bps from current levels. Our longer term view is still the same, low interest rates into yearend as the consumer continues to dig in their heels and look for work.
