Update 1:05 p.m.:

Update 9:25 a.m.:

For a few minutes it seemed that traders might have something going in the effort to push stock prices higher into the quarter end.  The Dow traded to +58.  But the index has sagged back to +10 as the euro fell back below 1.23.  The euro's current woes are not really vs. the dollar.  The euro is setting new lows against the pound and yen.  This has traders worried that the falling euro could trigger asset sales. 

Bond prices remain higher as buyers continue to add to positions.  The 2-year yield is down to .62%, the 5-year 1.83%, and the 10-year is higher by 19/32s to yield 3.04%. 

Update 6:50 a.m.:

The comment below was written about 5:30 a.m., an hour before the market opened.  Although there was no significant news, the expected trading in the markets is not going according to the early indications.  The euro is lower but only very slightly.  The Dow is even on the day instead of higher by 40 points. 

The big change though is in the bond market.  Bond prices were almost unchanged earlier but have since moved sharply higher.  The 2-year is .63%, the 5-year 1.85%, and the 10-year is now higher by 16/32s to yield 3.05%.  The 30-year bond is up 25/32s, dropping the yield to 4.22%.  Since there was no apparent news to spark this buying, I suppose that it must just be those money managers manuevering before the quarter ends. 

Morning Comment:

The markets are trading quietly to start a week that will likely be eventful.  The G-20 meeting didn’t produce anything noteworthy.  The primary accomplishment was a vague pledge to reduce budget deficits and grow the economies of the nations.  The markets in Europe are higher though and that is helping to lift U.S. stocks.   Dow futures in pre-opening trading are pointing to an opening of +40. 

The first part of this week will be all about quarter-end.  The S&P is now down 3.44% for the year, and money managers and traders will be focused on getting back to even on the year if not higher.  The 1^st quarter gains have been wiped out and then some, but managers don’t want to report losses for the year.  On the bond side, managers will be forced to make some quarter-end buys as indexes for indexed bond funds will extend.  Many bond managers have fallen behind the index and will fight to get even. 

There will be plenty of news over the next three days that will help determine where we end the quarter.  Tomorrow we’ll get the Case-Shiller home price index and Consumer Confidence.  Then on Wednesday the Chicago ISM manufacturing index will be released as will the ADP payroll report.  The ADP report, despite its spotty track record, will be closely watched for an indication of what to expect in Friday’s Nonfarm Payroll release. 

Once the quarter-end is put to bed, all attention will be focused on the Friday jobs report.  At this time, the consensus is for a headline decline of 110k jobs, but economists are looking for a net gain in private payrolls of 113k.  A gain of 113k is far from a good number, but it beats the heck out of last month’s paltry 40k.  If the gain is as expected or higher, most market pundits, traders, and economists will likely say that the weak May number was an aberration.  If the number is weak, worries will mount that a new weak trend in jobs is developing.   This number also comes before a long weekend, and that raises the stakes as well. 

The only interesting reading I found over the weekend was the first in a series of articles in the LA Times about the housing meltdown in the high desert region of California.  The article focuses on the plights of the people and the neighborhoods in that area.  Frankly, it’s just too depressing for me to comment.  It is worth reading though if you have an interest in how they went from boom to bust.  It’s a microcosm of every mistake made by builders, lenders, and home buyers. 

Bond prices are slightly higher to start the day.  The 2-year is .65%, the 5-year 1.88%, and the 10-year is higher by 6/32s to yield 3.09%.

I’ll be back with updates.

Dwight Johnston