If you could sum up all of the problems that bonds faced last week into one word, it would be inflation. Between earnings reports and economic data, along with various Fed speeches, there was little doubt which fear would take hold.
Retail Sales kicked it off by beating expectations, followed by PPI blowing away it’s forecast. CPI came in as expected, but it is still showing higher than desired, not to mention what will happen if the producers are able to pass increased costs onto consumers. And with the Fed meeting again next week, another rate cut could help fuel the inflation fire.
Bonds broke below their 25-day moving average, then beat on the 50-day and 100-day floor of support, finally breaking through. Bonds, ending the week down almost 100 basis points, did muster some strength on Friday. However, it is doubtful they can get back into their previous trading range.
This week is not going to offer much help for bonds. We will some some data on the housing front, but nothing that normally “moves the market”. This week will follow technical indications and the news, leaving little ability for bonds to break back above their 100- and 50-day averages.
Technically speaking, bonds are in the “oversold” side of the stochastic chart, but not by much. Additionally, the 50-day moving average, along with the 100-day moving average, will now act as a resistance layer. With bonds currently trading near this level and with nothing expected to give them strength, bonds likely will only move lower from here.
Here are this week’s events:
- Wednesday: Existing Home Sales (10:00), Crude Inventories (10:30)
- Thursday: Durable Goods Orders (8:30), Initial Jobless Claims (8:30), New Home Sales (10:00)
- Friday: Consumer Sentiment (10:00)
Probably the biggest event for this week will be the Initial Jobless Claims as eyes will be focused on what is happening on the job front. Keep in mind that we are experiencing stagflation, shrinking job market along with inflation, so caution will need to be used as we move forward. As the week begins, I am locking my clients and will do so unless something major happens to change my mind.
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{ 2 comments… read them below or add one }
As money flows now from the Stock Market to the Commodities Market - it will interesting to see what happens if the Fed stops cutting rates and in essence strengthens the dollar - which will move Commodities downward.
Robert thanks for the post it is always good to see what yo ahve to say every week and it is ususally very helpful.
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