Greetings from Vegas, baby. What a place to start of this week. Quite appropriate since this is the city where a lot of people lose their money and bonds will be struggling again this week.
First, let’s get into what happened in the bond’s “pit of despair” this last week. Getting the week started bonds gave the appearance that they renewed their strength, working off news that Wachovia ousted their CEO. On that news and more, money flowed from stocks over to bonds, giving bonds a needed correction, even breaking back above their 200-day moving average, “tricking” many mortgage professionals.
I ended up right on with my analysis on June 3 and June 4 (at Florida Mortgage Daily), talking about the move being unsustainable, and bonds came crashing down on Wednesday after the ADP report hinted a better jobs number. Thursday didn’t see any help as the jobless claims beat expectations as well.
Then came Friday, the market’s savior was found in the Jobs Jamboree. While payroll beat expectations and hourly earnings rose, all eyes focused on the headlines that unemployment jumped to 5.5%, the largest jump in over 20 years. Bonds rallied around that number even though the BLS data has been shown to be inaccurate due to the way it is calculated. As a result, bonds ended the week up on the week, but only by a measly 3 basis points, leaving rates the same as they started when the dust settled.
Where are they headed this week? Down is my guess, getting back to the trend since they are still well below their 200-day moving average.
This week will see bonds struggling, gasping for air anywhere they can as the two heavy hitters will be Retail Sales and CPI. The week will start out quiet, with data anyway, but things will heat up to a possible inferno by Friday, be ready for anything. Here is the breakdown…
- Tuesday: Balance of Trade (8:30)
- Wednesday: Crude Inventories (10:30), Fed Beige Book (2:00)
- Thursday: Retail Sales (8:30), Initial Jobless Claims (8:30)
- Friday: Consumer Price Index (CPI) (8:30), Consumer Sentiment (8:30)
(Update: Decided to add Fed Speech Schedule, at least for this week)
- Monday: Bernanke (Speech)- Outstanding Issues in the Analysis of Inflation (8:15p)
- Wednesday: Kohn (Remarks) – Lessons for Central Bankers (11:30a)
- Wednesday: Kroszner (Speech) – Consumer Credit Markets (12:15p)
- Thursday: Bernanke (Remarks) – Introductory remarks (11:30a)
Technically speaking, bonds remain in a downtrend with the only good news being that stochastics show bonds to be in an oversold condition. That means that another move higher as a correction should be in order. If and when that comes remains to be seen as news and data can keep them in that condition. I am holding that locking stance until I can see just reason to change it.
I heard Bernanke is about to give a speech on inflation at a Boston Fed conerence. You think that might have some impact?
Ling – Absolutely, and you can he expect Bernanke’s speech will likely be highlighting increased inflation now that he is acknowledging it. Bad news for bonds if he does.
Great updates as usual but, you forgot that Bernanke was also going to finally come clean that he is the father of Brittany Spear’s 7th child due this November…
Keep it up!
Clearly the fed is focused on inflation. However, what do you think about the fiscal stimulus working its way through the economy? In particular the $300 billion stimulus in the pipe line to refinance people facing foreclosure?
Cliff – Personally, I am against government intervention as the government always screws it up more than they help. This $300B will be yet another example of that overall.
Also, as for the Fed focusing on inflation, they see it finally and are acknowledging the continued threat, but don’t expect them to do more than blab away about it, at least until it has consumed everyone’s finances first.