Euro leaders launch new deal

Today’s economic calendar presents the first review of the 3rd Quarter 2011 GDP data, Personal Consumption, the Initial Jobless Claims report and Pending Home Sales. Treasury prices are lower this morning after it was reported that Personal Consumption, the main driver of U.S. GDP, performed better than expected the previous quarter. Also, there is increase optimism over the European sovereign debt crisis as European Leaders crafted a new deal in which:

• Private investors could “voluntarily” take a 50% reduction on Greece’s debt.
• The EFSF will be expanded by approximately €1 trillion.
• They will boost Euro’s 70 largest banks capital buffers by €106 billion.

The 2 year note is trading 1/32 lower to yield 0.29% while the benchmark 5year note has dropped 9/32 yielding 1.14%. The 10-year Treasury is currently down 25/32 to yield 2.29% and the long bond is down 1 and 29/32 points for a 3.32% yield.

For the record, the Commerce Department announced that Gross Domestic Product grew 2.50% in the previous 3 months of the year, the largest increase since 3Q 2010 and almost double the 1.30% growth registered in the previous quarter. This strong advanced GDP outlook was in part due to better than expected Personal Consumption as well as Durable Goods Orders. Personal Consumption, the biggest contributor to GDP, increased by 2.40% for the quarter versus the consensus of 1.90% In addition, consumption of durable goods rose 4.10% after dropping 5.30% in the previous quarter. Exports increased by 4.00% for the quarter, as the economy continued to benefit from a relatively weak dollar. Imports also rose but at a lower rate of 1.90%, therefore net exports narrowed to $-409.4 billion. Inventory levels decreased from $39.1 billion to $5.4 billion for the quarter. This decrease in inventory levels could be a positive sign for future growth as an increase in demand could prompt factories to boost production.

The Department of Labor released its weekly Initial Jobless Claims report this morning showing that claims dropped slightly less than expected, 2,000 versus the previous week, to 402,000; analysts had expected a 401,000 number for the week. However, Continuing Claims were lower than expected at 3.645 million versus the 3.700 million forecast. However, the less volatile 4-week average number of initial claims was 405,500, a 1,250 increase from the previous period. Finally, Pending Home Sales will be released at 9:00 a.m. CDT. Pending Home Sales, which tracks the number of home resales under contract, is expected to show an increase of 0.40% for September and a 12.60% gain YoY. This index is often used as a gauge to predict future home sales activity as these transactions typically become existing home sales one or two months later.