Greetings from Aruba this time. Last week was rather tame, wasn’t it? Yeah, right. Well, actually it started out rather tame, but the end of the week had bonds moving higher, looking good, then they came crashing down hard.
There wasn’t much data last week, and as such, traders look for anything to grab onto, and last week’s Initial Jobless Claims played a much larger role than normal. Inflation fears were fueled again by Fed speak, which put pressure on bonds as well. Overall, though, bonds ended the week basically flat.
Fueling bonds move higher was more news, in the form of earnings, of a continuing mortgage crisis. Stocks also moved lower many times this week, letting money flow over and benefit bonds. Bonds managed to break through some resistance layers by Thursday and things were looking like the sideways pattern would break. Then came Friday and oil prices and other news, including the Fed comments in speeches during the week, brought inflation back to the forefront and let the air out of the bonds’ kites.
The week ahead should promise to be another wild ride. The battle between recession and inflation will be heating up this week with Retail Sales and CPI data hitting the airwaves. We will also see some news on the housing front, as well as an unprecedented number of Fed speeches scheduled this week (fourteen to be exact).
Here is the scheduled data releases for the week…
- Tuesday: Retail Sales (8:30)
- Wednesday: CPI (8:30), Crude Inventories (8:30)
- Thursday: Initial Jobless Claims (8:30), Empire State Index (8:30), Industrial Production (9:15), Capacity Utilization (9:15), Philadelphia Fed Index (10:00)
- Friday: Building Permits (8:30), Housing Starts (8:30), Consumer Sentiment (10:00)
The big events are Retail Sales and CPI, setting the battle front up for the week. Bonds are already on a rollercoaster ride today having moved higher and then beating back down, currently flat as a pancake. I am going to recommend locking until we see a real direction as bonds are still stuck in that “squeeze play” (moving averages converging).
All the movement in oil and the dollar in the last two days has been sparked by the Chinese earthquake. Short term fall in oil demand is what it is, I guess. I’m going out on a limb here, but I’d say that as soon as the Chinese situation stabilizes, oil will start climbing again.
It appears the fed is looking to move toward raising rates sooner rather than later. Many fed officials have hinted to not waiting as long as they historically have to raise rates after a series of rate reductions. This lends itself to an interesting game of cat and mouse with the economy. However, I believe they did to be forwarding looking at this time rather than focused on the current environment. It appears the credit crisis is at the very least “contained” and with more fiscal policy on the way the fed should focus more on long term policy rather than short term.