Waiting for the GDP

Tuesday, October 30, 2007

ECONOMIC DATA / NEWS

Consumer confidence fell more than expected in October.  The Conference Board’s index dropped by more than forecast, coming down from 99.8 to 95.6.  This is a fairly considerable change for this index, and it makes sense considering the spike in oil prices and increasing number of layoffs.  Confidence is supposedly translated into how much consumers will spend.  The fact that the index is the lowest since late 2005 goes right in line with predictions of a recession.  The holiday shopping season is fast approaching, and the volume of purchasing during this time period will be a strong early indicator of whether or not a recession might be looming.

Merrill Lynch’s CEO was just booted from his position following their worst quarter in the company’s history.  The losses were attributed to the company’s huge exposure to subprime loans, which have been costing numerous lenders and investors vast amounts of money.  UBS just this morning announced a loss of $712 million for the same reason.  Of course, that’s nothing in comparison to the $2.3 billion hit that Merrill took.  Those economists (including Fed members) who have been saying that the subprime problems would not spill over into other sectors of the economy were sorely mistaken.  Right now it is directly impacting the financial sector as a whole.  But, when that happens, it eventually affects the consumer, which then translates in to less overall buying power.  All of this news will make the consumer spending data on Thursday that much more interesting.

TECHNICAL ANALYSIS

The FNMA 30-year 6.0% actually picked up a few more basis points than we thought it would yesterday, which was a welcomed surprise.  But that also explains why it is down 3bp this morning.  The current price of 100.97 is not far from resistance at 101.06.  And, with the exception of the two days in the middle of last week, the bond has not traded above 101.00 since March of this year.  This will make traders act very cautiously around this level.

The 10-year Treasury yield is essentially flat again today.  The yield is at 4.39%, and it has been trading mostly between 4.38% and 4.41% since yesterday morning.  The 10-day moving average has quickly dropped to 4.42%, so there is at least minor resistance just above the current yield.

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