by NewstraderFX
Since information regarding credit markets will remain crucial, we'll need to carefully scan the financial press for any information related to this. Improvements (or a lack thereof) will be crucial for determining market direction.
According to Wachovia, spreads on asset-backed commercial paper remain at their widest levels since early 2001 and the spread between conforming mortgages and ten-year Treasury notes remains about a quarter percentage point wider that it did a few weeks ago. Subprime mortgages are still extremely difficult to find and rates on jumbo mortgages remain unusually high relative to Treasuries.
You can also assume that economists expect housing sales to decline going forward and some expect sizable drops will be seen in the August and September reports. Whether this will start to affect markets at this time is unknown, but I would tend to think that most market participants are expecting this to occur. Should the August report print better then expected (in September), you can expect a strong surge in equities and carry trades. Aside from housing, there is very strong evidence that business investment remains strong, so that is likely to be supportive.
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