Update 1:05 p.m.:

Traders saved up all the day's activity for the last hour.  For most of the day, the Dow drifted between unchanged and down 20 points.  Heading into the last hour, the Dow was down 20.  In a very short period of time, the Dow fell to -125.  There were attempts to rally back, but those attempts fell short leaving the Dow to close down 114 points.  There seemed to be no catalyst for the weakness other than the euro.  The euro fell from 1.258 to 1.253, but that doesn't strike me as a significant enough reason to sell. 

With the way the market closed tonight, traders are likely concerned about what tomorrow holds.  But the market has been nothing but inconsistent of late, and one day's trade doesn't necessarily impact the next.  I suppose where the euro trades in the morning will matter the most. 

Bond prices closed slightly higher, but there was no flight-to-quality.  We're not there yet.  The 2-year ended at .84%, the 5-year 2.25%, and the 10-year gained 9/32s to yield 3.54%.  The 30-year bond had a nice 26/32 gain to close at 4.43%. At least for this evening, there are a lot of happy buyers of the Treasury's auctions.

We'll get Retail Sales and Industrial Production tomorrow.  Retail Sales are forecast to rise by roughly .3%.  The Industrial Production gain is predicted to be .7%.

Update 10:05 a.m.:

There were no big surprises from the Treasury's 30-year auction.  Demand was relatively strong but did not exceed expectations or previous auction results.  Heading into the bond auction, bond prices had already retreated back to even on the day.   After the auction results, prices remain unchanged.  Once again, big new treasury supplies have been easily gobbled up.  The 2-year is .86%, the 5-year 2.28%, and the 10-year is unchanged at 3.57%.

Speaking of dull, the stock market has been confined to a very narrow trading range.  The low on the Dow has been -56 and the high +24.  The Dow is currently -21.

Update 7:05 a.m.:

It looks like traders aren't quite ready to turn loose of the strategy of allowing the euro to dictate trading.  Dow futures were slightly highe early, but by the time the market opened the euro was sinking toward the 1.25 level from 1.257.  That was enough to send the Dow down 57 points.  But the euro perked back higher and the Dow obediently responded by trading to the current -10.  Volume is very light.  

The price of oil has continued to decline, and a barrel now costs only $74.  A few weeks ago oil experts were all predicting $100 oil for the summer months.  This is certainly a good thing for summer travel, but it's not likely to make a huge difference. 

Bond prices have firmed up on the weak equity opening.  The 2-year is .85%, the 5-year 2.26%, and the 10-year is higher by 9/32s to yield 3.54%.  The current 30-year bond is higher by 25/32s despite the fact the Treasury is getting ready to sell another $18 billion of the issue. 
  
Morning Comment:

The market certainly looks like today will be very quiet.  In early trading Dow futures are close to unchanged.  Markets in Europe are quiet and generally slightly higher.  The euro is weaker this morning (1.257 vs. the dollar), but it seems as if market pundits have decided this will be a non-issue to stocks.  The spin now is that, rather than trigger selling from those who borrowed in dollars to invest in other currency assets, the dollar’s strength will merely attract more money into the U.S. markets.  It’s nice to know that stocks will go up no matter which direction the dollar moves. 

It does seem that our new BFFs, high-frequency traders, are back in control.  When they were in total control we saw dull markets with lack of new investor money, but prices advanced steadily higher.  For a period of several months, typical volume on the NYSE was around one billion shares.  And, the higher the market went the more volume declined.  High-frequency trading was the only game in town.  In the selloffs last Thursday and Friday, volume averaged 2.4 billion shares.  Monday’s rebound saw volume hit a healthy 1.7 billion.  But yesterday’s volume slid back to 1.2 billion.  After breaking away from the predictable routine, I thought (hoped) volatility and a more fluid market had returned.  That’s looking less likely every day.  

Weekly Jobless Claims were expected to fall to the 435-440k level, but claims came in at 444k.  This isn’t good news, but it doesn’t qualify as anything to be overly concerned about.

According to RealtyTrac foreclosure filings dropped on a year-over-year basis for the first time in five years, but monthly foreclosure filings did exceed 300,000 for the 14^th straight month.  RealtyTrac noted that the drop in filings seemed to reflect the fact that banks are delaying filings rather than reflecting “curing” of delinquent mortgages.  Banks did take possession of a record number of homes in April.  There are fewer homes coming into the delinquency pipeline, but there are record numbers of homes remaining and advancing through the pipeline.  That’s the issue and why it’s so important that job growth advance rapidly. 

Bond prices are unchanged to slightly higher to start the day.  The 2-year is .86%, the 5-year 2.27%, and the 10-year is higher by 5/32s to yield 3.56%.  The Treasury auctions a new 30-year bond today.  Given the potential price volatility in 30-year bonds, dealers are always a bit concerned about these auctions.  But based on the first two auctions this week for the 3-year and 10-year notes, buyers are likely to take on the issue without any problems.

I’ll be back with updates.

Dwight Johnston