Sorry for the late post this week, but things were a bit busy today and business comes first. Nevertheless, here is the update to get your week started…
This last week was definitely interesting to say the least. Bond traders were looking for anything to help them drive bonds higher, whether or not fundamentals have changed, which of course, have not. “Volatility” remains the key word in the markets.
So, what happened last week that drove bonds higher and allowed mortgage rates to drop again?
Bonds remained in rally mode all week off various fears of recession, with many economists now predicting it and some even saying we are already in it. In a slowing economy, bonds feel the love.
That was then fueled even more by Big Ben Bernanke’s speech which he basically left “inflation” out. So, he indirectly showed he is more concerned about avoiding recession than he is about the increasing inflation. He even went so far is to state that the Fed will stand ready to cut rates again if necessary, which the markets took as a guaranteed rate cut, even a 50bp one. Bonds rallied again.
As we saw bonds continue their rally last week, fueled mostly by Big Ben’s speech, the market sentiment is likely to change drastically this week, depending on the numbers coming out. Bonds have a number of things going against them this week, not the least of which is economic data that will show whether or not inflation is increasing. There is a whole slew of data coming this week that will move the markets.
Retail Sales kicks off the week tomorrow, followed by PPI. Retail Sales has been expected to be dismal, so any number greater than expected may force bonds lower. PPI is not a heavy hitter, but it does give an inflationary gauge. CPI will be the big inflationary number for the week and that is due out Wednesday. We will also see information on housing, production, consumer sentiment and jobless claims, with the Philadelphia Fed Index being another major player.
Here is the economic agenda for the week (bold equals major impact):
- Tuesday - Retail Sales (8:30), Empire State Index (8:30), Producer Price Index (PPI) (8:30)
- Wednesday - Consumer Price Index (CPI) (8:30), Capacity Utilization (9:15), Industrial Production (9:15), Beige Book (2:00)
- Thursday - Housing Starts (8:30), Building Permits (8:30), Initial Jobless Claims (8:30), Crude Inventories (10:30), Philadelphia Fed Index (12:00)
- Friday - Consumer Sentiment (10:00), Index of Leading Economic Indicators (LEI) (10:00)
Top all these reports with bonds being technically in a bad position. They are overbought, high on the trading channel and range, face stiff resistance, and will not likely see much good news this week.
This coming week will only be the beginning of inflation related data as the PCE report will be the one to watch down the road. Some of the “moderate” reports may take on a little more emphasis this week as well, especially the Initial Jobless Claims, so don’t let your guard down.
Overall, this week looks like bonds will be doing at least a correction unless something dramatic happens. I, for one, will be starting the week off in a locking stance and very hesitant to change that stance unless something big does happen. Have a great week.
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{ 3 comments… read them below or add one }
Previously, if the FED were to announce rate cuts, the markets would rebound and bonds would go down…Now, if Bernanke says he favors rate cuts, we take it as a sign that he’s worried about recession, and bonds will go up? This is a wierd market.
Franklin, this is exactly why I spent so much time looking for someone with Robert’s expertise. The more I tried to figure out the market on my own, the more confused I became.
Franklin - This is definitely a wierd market, one in which logic and reason have flown the coup and fear rules the day. Never a good thing when people let fear run their decisions.
Todd - Thank you for the compliment. I am deeply honored.
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