5:00 PM EDT :
Treasuries rose today as more signs of weakness in subprime mortgaged-backed debt sent investment flows into the more secure government-backed arena. The stock indices finished in mixed fashion but the Dow hit another record high. In late trading, the 10-Year Treasury Note was up by 15/32, lowering its yield to 5.04%; the Dow was up by 43.73 points to 13,950.98; and the Nasdaq was up by 9.67 points to 2,697.33.
The main economic item of the day was largely overlooked. The New York regional manufacturing index was stronger than expected this month. Recent manufacturing data has been strong but last Friday's retail sales report for June was surprisingly weak. The housing sector is also in a slump so bond traders did not take today's news as overly bullish.
Last Tuesday, the bond market got a significant lift on news that Standard and Poor's was lowering the credit rating on a portion of subprime debt. The market dropped on Wednesday and Thursday when S&P reported that the size of the debt pool was significantly smaller than originally reported. But concerns about mortgage debt remain and indices on the sector are falling. Consequently, traders are shifting into Treasuries.
In the stock market, rumors of a huge, $160 billion bid by Vodaphone for Verizon Communications added to the growing string of mergers and acquisitions news that has energized the market. But the subprime situation weighed against the market as did the fact that the earnings report season is heating up.
Another negative for the market was a rise in oil futures. The price of a barrel of light, sweet crude oil for August delivery rose by $0.22 on the New York Mercantile Exchange to settle at $74.15, the highest close for a front-month contract in eleven months. Nevertheless, the Dow gained 0.31%. The S&P 500 eased back by 0.19% today and the Nasdaq by 0.36%.
Tomorrow brings the first major inflation indicator of the month, the Producer Price Index (PPI). This gauge of price pressures at the wholesale level rose by 0.7% in May but was up by only 0.2% if the volatile categories of food and energy are factored out. A tame 0.2% overall increase is predicted as well as another 0.2% rise at the core level.
The second release of the day is also considered a first-tier indicator. This is the report on industrial production. Following a flat (0.0%) reading in May, a bounce of 0.4% or 0.5% is anticipated for June according to recent predictions. Capacity utilization, the ratio of output to potential output, is expected to have increased to 81.6% from 81.5%.
The upside may be blocked tomorrow as stock and bond traders begin to prepare for Wednesday's testimony from Fed chief Ben Bernanke. Another inflation indicator, the Consumer Price Index, is also slated for release on Wednesday as is the first major housing indicator of the month, the report on new construction starts in June.
