Risks favor: Cautiously Floating
Current Price of FNMA 6.0% Bond: $98.81, +12bp
Bonds are trading higher on the release of a tame Core Personal Consumption Expenditure (PCE) Index. The Core PCE for May was reported at 0.1%, which matched expectations...but most importantly, lowered the year-over-year Core consumer inflation rate to 1.9% - inside the goalposts of the Fed's desired target zone of 1 to 2%. Very good news for Bonds. However, this morning's advance is being capped by the very strong Falling Resistance Line - take a look at the Bond Page.
This is just on the heels of yesterday's Fed statement - where as expected, they left the Fed Funds Rate unchanged at 5.25%, but stated that although inflation is moderating, they are not yet persuaded that it is fully under control. And the Fed does expect an increase in economic activity - which means they are not likely to make a cut to the Fed Funds Rate in the very near future. This was a bit of a mixed message that took awhile for the market to fully absorb, and Bond prices ultimately finished just slightly lower yesterday. So this morning's news of tame inflation data via the Core PCE was an especially welcome sign. But there is talk that the Fed may also be concerned that the Headline Inflation numbers, which include food and energy, have been a bit higher than desired. This will be a story to keep an eye on.
In other economic headlines, the Chicago Purchasing Manager's Index (PMI) was reported at 60.2, better than expectations of 58.0 and right in line with the Fed's comments on economic activity picking up ahead. Additionally, the Revised University of Michigan Consumer Sentiment Index for June was reported at 85.3, better than expectations of 84.0. Consumers also continue to spend money like they hate it - the Personal Savings Rate dropped even more negative, to stand currently at -1.4%. The stronger than expected economic reports have not put much of a damper on the Bond rally so far today, as Traders are focused on enjoying the friendly read on core consumer inflation.
The “big squeeze” is still on, as Bonds continue to battle the Falling Resistance Line, presently at $98.79. With support below at $98.28, a breakout is pending. Next week's lower than normal holiday Trading volume, coupled with next Friday's Jobs Report might just provide the spark that causes Bond prices to either push above this ceiling or head back down towards support at $98.28.
Friday, June 29, 2007
Thursday, June 28, 2007
Market Update June 28, 2007
Current Price of FNMA 6.0% Bond: $98.78, -3bp
The market is rolling along this morning, singing..."I'm not waiting on a lady, I'm just waiting on the Fed". Yep, just like that classic Stones tune, the market is on the edge of its seat, waiting on the Fed statement to arrive at 2:15pm ET this afternoon, and hoping it brings a friendly word on inflation.
In this morning's news, First Quarter GDP was finalized at 0.7%, below expectations of a final 0.8% read. So while First quarter did finish somewhat weakly, we are expecting that Second Quarter will come in a bit stronger. On the labor scene, Initial Jobless Claims was reported at 313,000, in line with expectations and suggesting the labor market remains tight. But today - we are just waiting on the Fed.
The Fed announcement this afternoon should be very interesting. While there is no chance the Fed will change the current Fed Funds rate of 5.25% last set on June 29, 2006, the market will be carefully analyzing the wording that the Fed uses to describe its present view on inflation and monetary policy. Stocks and Bonds alike would enjoy hearing some soothing words about inflation, and will be hoping to read between the lines as to signs of a rate cut by the Fed, and when it might happen. If Traders believe the Policy Statement signals the possibility for a rate cut anytime in the near future, we could see a nice rally to the upside in bond prices. But should the Fed's words indicate a continued concern about inflation, Bond prices will likely move lower in response.
Technically, the squeeze is on...as Bonds currently trade between a Falling Resistance Line overhead, presently at $98.82 and a floor of support at $98.28. This afternoon's Fed meeting may determine the Bond's next move in the squeeze play - so stay tuned as we all wait on the Fed.
The market is rolling along this morning, singing..."I'm not waiting on a lady, I'm just waiting on the Fed". Yep, just like that classic Stones tune, the market is on the edge of its seat, waiting on the Fed statement to arrive at 2:15pm ET this afternoon, and hoping it brings a friendly word on inflation.
In this morning's news, First Quarter GDP was finalized at 0.7%, below expectations of a final 0.8% read. So while First quarter did finish somewhat weakly, we are expecting that Second Quarter will come in a bit stronger. On the labor scene, Initial Jobless Claims was reported at 313,000, in line with expectations and suggesting the labor market remains tight. But today - we are just waiting on the Fed.
The Fed announcement this afternoon should be very interesting. While there is no chance the Fed will change the current Fed Funds rate of 5.25% last set on June 29, 2006, the market will be carefully analyzing the wording that the Fed uses to describe its present view on inflation and monetary policy. Stocks and Bonds alike would enjoy hearing some soothing words about inflation, and will be hoping to read between the lines as to signs of a rate cut by the Fed, and when it might happen. If Traders believe the Policy Statement signals the possibility for a rate cut anytime in the near future, we could see a nice rally to the upside in bond prices. But should the Fed's words indicate a continued concern about inflation, Bond prices will likely move lower in response.
Technically, the squeeze is on...as Bonds currently trade between a Falling Resistance Line overhead, presently at $98.82 and a floor of support at $98.28. This afternoon's Fed meeting may determine the Bond's next move in the squeeze play - so stay tuned as we all wait on the Fed.
Great Jib-Jab Star Spangled Banner
This video is sung by many of our presidents. I think a great tribute to our upcoming National Holiday.
Wednesday, June 27, 2007
Market Update June 27, 2007
Current Price of FNMA 6.0% Bond: $98.88, +12bp
A weaker than expected Durable Goods Orders report is giving Bonds a boost so far this morning. Durable Goods Orders fell by a greater than expected 2.8% during May, as business orders for big ticket items declined. This was the lowest reading since January, and indicates that businesses are making fewer purchases for things like equipment, machinery, and especially for aircraft orders. This weak report was good news for Bonds, as these lower spending levels may help keep inflation moving lower as well.
At 1:00pm ET, the market will be delivered some additional Bond supply by way of a Treasury auction of $13 Billion in Five-year Notes. Added supply always has the potential of having an impact on Bond prices - but even bigger news items are just ahead, with the Fed Policy Statement arriving tomorrow at 2:15pm ET and the important Personal Consumption Expenditure (PCE) number arriving Friday.
Take a look at the Bond chart below to see that Bond prices "gapped open", or opened higher than yesterday's highest trading prices. This is a positive technical signal. But before we start popping the champagne corks, bear in mind that it is a long trading day ahead, and things could change very quickly; the market has been extremely volatile over the past couple of months. For now, we'll advise Cautiously Floating, as we wait to see what the Fed has to say tomorrow on inflation, the economy and the outlook for monetary policy.
A weaker than expected Durable Goods Orders report is giving Bonds a boost so far this morning. Durable Goods Orders fell by a greater than expected 2.8% during May, as business orders for big ticket items declined. This was the lowest reading since January, and indicates that businesses are making fewer purchases for things like equipment, machinery, and especially for aircraft orders. This weak report was good news for Bonds, as these lower spending levels may help keep inflation moving lower as well.
At 1:00pm ET, the market will be delivered some additional Bond supply by way of a Treasury auction of $13 Billion in Five-year Notes. Added supply always has the potential of having an impact on Bond prices - but even bigger news items are just ahead, with the Fed Policy Statement arriving tomorrow at 2:15pm ET and the important Personal Consumption Expenditure (PCE) number arriving Friday.
Take a look at the Bond chart below to see that Bond prices "gapped open", or opened higher than yesterday's highest trading prices. This is a positive technical signal. But before we start popping the champagne corks, bear in mind that it is a long trading day ahead, and things could change very quickly; the market has been extremely volatile over the past couple of months. For now, we'll advise Cautiously Floating, as we wait to see what the Fed has to say tomorrow on inflation, the economy and the outlook for monetary policy.
Tuesday, June 26, 2007
Market Update June 26, 2007
Current Price of FNMA 6.0% Bond: $98.81, +3bp
Just like any major league baseball player caught in a "squeeze play" between third base and home, Bonds are heading right into a squeeze play of their own.
Just take one look at the Bond Page and you can see it...Bonds are right between a Falling Resistance Line overhead, currently at $98.88 and falling everyday, and a floor of support below at $98.28. You can also see how the Falling Resistance Line has been tested but not yet defeated, so Bonds will need a strong catalyst if they are going to be able to break higher above this ceiling as the squeeze play tightens in the next few trading sessions. With a week full of news - the catalyst could come any day, but the technical squeeze certainly heightens the anticipation for the upcoming Fed Meeting and PCE Report set for release on Thursday and Friday.
New Home Sales for May were reported at 915,000 units, slightly lower than expectations of 925,000 - plus the report brought a downward revision for April's numbers as well. Inventory remained relatively stable at a 7.1 month supply, well off the recent highs of 8.3 months. Although the report was somewhat weak overall, the even inventory pace suggests further stabilization in the Housing market.
Just like any major league baseball player caught in a "squeeze play" between third base and home, Bonds are heading right into a squeeze play of their own.
Just take one look at the Bond Page and you can see it...Bonds are right between a Falling Resistance Line overhead, currently at $98.88 and falling everyday, and a floor of support below at $98.28. You can also see how the Falling Resistance Line has been tested but not yet defeated, so Bonds will need a strong catalyst if they are going to be able to break higher above this ceiling as the squeeze play tightens in the next few trading sessions. With a week full of news - the catalyst could come any day, but the technical squeeze certainly heightens the anticipation for the upcoming Fed Meeting and PCE Report set for release on Thursday and Friday.
New Home Sales for May were reported at 915,000 units, slightly lower than expectations of 925,000 - plus the report brought a downward revision for April's numbers as well. Inventory remained relatively stable at a 7.1 month supply, well off the recent highs of 8.3 months. Although the report was somewhat weak overall, the even inventory pace suggests further stabilization in the Housing market.
Monday, June 25, 2007
Market Update June 25, 2007
Current Price of FNMA 6.0% Bond: $98.78, +16bp
Mortgage Bonds are trading nicely higher this morning, following up on Friday's successful bounce on the $98.28 floor of support.
While last week was all about technicals - this week the economic news will return to center stage for driving market action, kicking off with a look at the housing sector this morning. Existing Home Sales during May of 5.99 Million units were slightly stronger than the 5.90 Million that economists had expected - but the inventory of homes on the market rose by 5%, currently representing an 8.9 month supply. Lawrence Yun, economist for NAR said that although housing is still correcting, he said the fundamentals such as strong job creations, economic growth, favorable mortgage rates and flat home prices are all positives for the outlook ahead.
And the calendar will get even more intense from here, with potentially market moving releases every day this week, including the Fed Policy Statement on Thursday and the Fed's favored measure of inflation, the Core Personal Consumption Expenditure (PCE) number, arriving the very next day on Friday.
For now, Bond prices are moving higher, but fast approaching a tough layer of overhead resistance at the Falling Resistance Line and Falling Window. We will continue to carefully float for now, but with the week's strong calendar of economic news in store, the volatile ride Bonds have been on lately may not be over just yet.
Mortgage Bonds are trading nicely higher this morning, following up on Friday's successful bounce on the $98.28 floor of support.
While last week was all about technicals - this week the economic news will return to center stage for driving market action, kicking off with a look at the housing sector this morning. Existing Home Sales during May of 5.99 Million units were slightly stronger than the 5.90 Million that economists had expected - but the inventory of homes on the market rose by 5%, currently representing an 8.9 month supply. Lawrence Yun, economist for NAR said that although housing is still correcting, he said the fundamentals such as strong job creations, economic growth, favorable mortgage rates and flat home prices are all positives for the outlook ahead.
And the calendar will get even more intense from here, with potentially market moving releases every day this week, including the Fed Policy Statement on Thursday and the Fed's favored measure of inflation, the Core Personal Consumption Expenditure (PCE) number, arriving the very next day on Friday.
For now, Bond prices are moving higher, but fast approaching a tough layer of overhead resistance at the Falling Resistance Line and Falling Window. We will continue to carefully float for now, but with the week's strong calendar of economic news in store, the volatile ride Bonds have been on lately may not be over just yet.
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