Somewhat of a quieter open today in the stock and bond markets after the wild trade yesterday taking the DJIA down 313 points and dropping interest rates 10 bp on the 10 yr and increasing MBS prices 56 points. The stock market did act better yesterday than when Pres. Obama was elected four years ago, then the DJIA fell 400 points. Early this morning the 10 yr note yield was up 2 bp to 1.67% and MBS prices generally unchanged from yesterday's close but down from 9:30 yesterday. Weekly jobless claims this morning were expected to be up about 7K, as reported claims fell 8K to 355K. Last week's claims were distorted due to the storm ion the East. One state said the loss of electricity due to the storm suppressed filings, while others said workers who lost their jobs as a result of the weather were starting to apply, a Labor Department spokesman said. Over the next few weeks the claims data will be affected by the storm so the data isn't going to be as impacting as at times it is when the data deviates widely frm forecasts. Claims may jump back in coming weeks as more storm-related applications begin to be processed. A less-volatile measure of claims, the four-week moving average, rose to 370,500 from 367,250.

The Sept trade deficit was less than expected and at the lowest since Dec 2010; the deficit as reported -$41.5B, the estimates were in the -$45B area. The increase in sales to overseas buyers was broad-based, with everything from soybeans to fuel and civilian aircraft showing gains, at the same time imports increased as US consumers are spending more money these days.

In Europe the ECB's Mario Draghi said this morning that the region's economy will remain weak. The same comments that surfaced a day ago when the European Commission said it had revised lower the growth forecasts for the EU as the debt crisis has resurfaced in Greece with riots prior to the austerity vote that barely passed. The ECB left its base rate unchanged at 0.75%. German exports, adjusted for work days and seasonal changes, dropped 2.5% from August, when they gained 2.3%, the Federal Statistics Office said today. That's the biggest slide since December. Europe is falling deeper into recession, now beginning to impact Germany, the strongest economy in the EU. One of the reasons the global stock markets declined yesterday.

Now that the elections are behind us the focus is on the coming fiscal cliff. There is nothing changed about the make-up of Washington's political structure. Republicans still have the House, Democrats the Senate and White House. Yesterday there was posturing from Republicans, admitting for the first time that there is a need for increased revenues (taxes). 53 days remain before we go over the cliff with huge spending cuts and the end of the Bush tax cuts. The cliff however is likely to be avoided with the tax cuts and spending being extended through next year, or at least through the first quarter. Markets are left to ponder whether or not the political parties can actually accomplish anything of substance. Any resolution on the cliff will likely drag on until the final moments before Congress closes for the end of the year holidays.

This afternoon at 1:00 Treasury will complete the refunding with $16B of 30 yr bonds auctioned. The 3 yr and 10 yr auctions did not meet strong demand.

The near term and longer term outlook for US interest rates remains positive, both from a fundamental and technical views. With Bernanke and friends willing to continue to print money to keep rates low and the fragile economic outlook with no inflation apparent we don't expect rates will increase much it at all, however we still hold that the lows have been achieved last July when the 10 yr fell to 1.40%. To change our outlook will demand on economic performance through the end of the year. How low interest rates will fall depends on the economy; in terms of forecasting lower rates one has to believe the economy is going to slip in 2013.