Update 2:10 p.m.:

In another display of "strictly professional trading", the Dow managed to turn a silk purse into a sow's ear.  At one point today, the Dow was higher by almost 120 points.  Not coincidentally, the Euro was making its high for the day.  Then the Euro reversed course, going back below the 1.200 area to close unchanged on the day.  Well, we know what to do about that, don't we?  The Dow also reversed course, dropping almost 200 points before closing at 9,899.  This was lower than yesterday's close by 40 points.  For a while there it looked like stocks might be able to stitch together a couple of up days in a row, but it was not to be today. 

The 10-year auction was fine, as Dwight noted, with the awarded yield of 3.242% being right on the forecast if not a little lower.  This issue is now offered at 3.19% at the end of trading today.  The 3-year from yesterday came at a yield of 1.22% and it is offered at just under 1.20%.  So far, we are two for two on the auction front.  Again, the results are important but at the margin prices are determined by the Euro and the stock market. 

Tomorrow brings the Weekly Jobless Claims report.  This series has been sticky above the 450k level since late April.  This softness showed up in the Nonfarm Payroll report last week.  The forecast is for a reading of 450k again for the week.  But we will be able to react to overseas stock market action and the Euro trader before we even get a look at the data.

Update 10:05 a.m.:

The 10-year treasury note auction results were in line with previous auctions.  There was ample demand but nothing extraordinary. Given the low yield and the environment of a stock rally, the results were actually pretty good.  Bond prices remain at levels before the results.  The 2-year is .76%, the 5-year 2.01%, and the 10-year is down 10/32s to yield 3.22%.

Stocks are off the highs (Dow hit +124), but all indexes have solid gains.  The Dow is now up by 86 points, and the NASDAQ and S&P are each higher by roughly 1%.  The big rally in the euro to 1.208 that caused the stock surge has cooled off, but the euro remains well above 1.20.

Update 8:25 a.m.:

After a rather dull start, the stock market seems to be its mojo back.  Or should I say the euro has its mojo going.  The euro jumped to a high of 1.208, and the Dow is now higher by 98 points.

This is pushing rates slightly higher.  The 2-year is .76%, the 5-year 2.02%, and the 10-year is lower by 13/32s to yield 3.23%.

Update 7:40 a.m.:

For all of the bullish talk and general giddishness early this morning, stocks are surprisingly subdued.  The Dow is now up 33 points and has been trading quietly in a range of +25 to +50 points.  Volume is light.  The euro is doing its part by staying well above 1.20 at 1.204.

Bond prices remain near opening levels.  The 2-year is .75%, the 5-year 2.00%, and the 10-year is down 8/32s to yield 3.21%.  The Treasury's 10-year auction results will be released at 10:00 a.m. PDT.  There could be some volatility then if the results are surprising.

Ben Bernanke's prepared remarks for his testimony have been released, and there was nothing headline worthy.  Perhaps the Q&A will be more interesting.

Morning Comment:

Stock traders are looking to add to yesterday’s gains today, and they are getting some help from foreign markets.  China reported a surge in exports, and that beleaguered stock market rose sharply last night.  More importantly to short-term traders is that the euro has traded back above 1.20 this morning.  That led to higher European stocks which is leading to Dow futures trading up 50 points in early pre-opening trading.  The  CNBC talking heads today are chattering about a possible rebound in the euro lasting more than a few hours this time.  Several currency trading “experts” believe the euro has been oversold and due for a big bounce in the short-term.  Our stocks would certainly follow that move.   

Technical traders are also making a big deal out of the bounce in the S&P yesterday from near 1040.  To this pack of chartheads, this was a successful test of support.  You’ll notice that for all the reasons I’ve listed that the market is rallying today and rebounded yesterday, I didn’t mention one thing that was related to a fundamental change in the economy or the financial structure.  But that’s the market we’re witnessing now.  It’s a short-term game run by short-term traders. 

There are no economic releases today, but there are some news items.  We have already received the weekly purchase mortgage applications, and those applications continue in a freefall.  The home sales figures for May will be ugly but not unexpected.  The Fed will release the Beige Book later this morning.  There will be no surprises in those headlines.  Modest economic improvement will be the theme. 

Ben Bernanke will speak starting at 7:00 a.m. PDT this morning before Congress on the economy.  Since he spoke just yesterday we won’t hear anything new.  There will be a Q&A session that could produce some headlines. 

Bond prices are lower with stocks rallying.  The 2-year is .76%, the 5-year 2.01%, and the 10-year is now lower by 10/32s to yield 3.22%.  Dealers are apprehensive about the

Treasury’s 10-year auction today.  With yields low and stocks perhaps starting a rally, demand could be questionable. 

With all of the reasons that traders have to rally the market today and beyond, it seems like almost a sure thing that stocks will move higher.  But how many times in the past two months have traders thought they had everything lined up for a rally only to be derailed?  Remember just last week how traders rallied stocks so sharply on Wednesday because of "technical support" and the low risk heading into Nonfarm Payrolls?  Maybe the odds are in their favor this time though.

I’ll be back with updates. 

Dwight Johnston