Yesterday the stock market closed weaker, down 143 on the DJIA, the bond and mortgage markets rallied with mortgage prices gaining .37 bp and the 10 yr yield -6 bp to 1.58%. This morning the stock indexes started stronger, and as usual the bond and mortgage markets started weaker. If one market rallies the other declines; a pattern that is very predictable these days. The stock market was boosted by comments from Chicago Fed President Evans this morning.

At 8:30 May import and export prices; import prices fell 1.0% as expected and April prices were revised from -0.5% to no change. Export prices were expected +0.1% but declined 0.4%. Neither report had any influence on the markets. In pre-market opening the stock indexes traded better with the DJIA futures up 60 points at 8:45. At 9:30 the DJIA opened +30, NASDAQ +10; the 10 yr note -12/32 at 1.63% +5 bp and 30 yr MBS price -3/32 (.09 bp).

Chicago Fed President Evans out today advocating more Fed easing to increase jobs. Evans isn't a voter on the FOMC and he has been a strong supporter for the Fed to do more. "I've been in favor of pretty much any accommodative policy I've heard about," Evans said in an interview on Bloomberg Television today. "Extending the Twist would be useful," he said, referring to a plan expiring this month that lengthens the average duration of bonds in the Fed's portfolio. "More asset purchases would be useful. More mortgage-backed securities purchases would be good." "I would prefer that we worked harder to clarify our forward guidance," Evans said in the interview recorded yesterday in Chicago, reiterating his call for the central bank to commit to low interest rates until the unemployment rate falls below 7% or inflation breaches 3%. Evans's remarks contrasted with the views of some officials, including Atlanta Fed President Dennis Lockhart, who said yesterday he doesn't see a need for more accommodation now partly because Treasury yields are so low. The differences of opinions and views within the Fed are not unusual but with the Fed intent on more clarity we actually hear the differences that were somewhat suppressed in the past.

Next week (June 19th and 20th) the FOMC meeting takes place. Last week in his testimony to the Joint Economic Committee of Congress Bernanke was arguably less dovish than most expected but he was able to stem any major sell off in equities by noting that the Fed stood 'ready to act' if conditions worsened. His past credentials have earned him the nickname 'Helicopter Ben' and thus allow him the ability to provide verbal intervention. But, his rather vague answers regarding the tools that would be used to stimulate the economy were viewed by markets as slightly hawkish for the Chairman. Bernanke is continuing his plea that Congress help out with fiscal measures but this Congress can hardly agree on the time of day let alone tackle serious fundamentals and spur job growth; meanwhile the President is blaming Congress for the weak state of the economy saying he has sent Congress bills that never get passed----a Pontius Pilate thing.

A new survey out frm BofA Merrill Lynch; 34% of investors expect the Fed to ease again; 44% of investors believe Greece will vote to stay in the EU when citizens vote this Sunday while 19% say Greece will exit. The majority is expecting the Fed to announce it will continue Operation Twist whereby the Fed is extending the maturity of its bond portfolio by selling short-dated notes while buying at the long end ( 7s, 10s and 30s).

Yesterday Spain got 100B euros ($125B) to shore up its declining banking sector; this morning Spain's interest rates are increasing as global markets are not impressed with the infusion and likely there will need to be more. 100B euros is seen as being just a down payment to save the banks; then Italy will come to call on the EU to do the same for its banks. In our opinion unless the IMF becomes involved with money the EU can't get out of this mess, there just isn't any desire on Germany's part to take on the debt burdens of other EU crumbling countries.

Treasury will begin this week's auctions this afternoon with $32B of 3 yr notes, the auctions are expected to meet with decent demand. We do not expect much movement in the bond, mortgage and stock markets this week ahead of what will occur next week. The FOMC meeting, the G-20 meeting and the Greek vote next Sunday. This week the bond market will take its lead from the stock index trading; not the bond market leading, it's the stock market that will set the tone on reactions to news and comments from Fed officials.