Rates get better

Thursday, November 15, 2007

ECONOMIC DATA / NEWS

The employment picture appears to be worsening.  Weekly jobless claims came in at 339,000 for last week, after falling to a one-month low at 319,000 the week prior.  Looking at the November Empire State index, employment was one of the weak spots in an otherwise upbeat report.  The index was a very strong 27.4, but current employment and future employment expectations both dropped.  Manufacturing has been one of the big sectors that has been consistently losing jobs.  The Philly Fed survey will be released at 12:00 PM ET.  It has almost always been below the New York index for the last 2+ years.  It is not forecast to show any improvement this month either.

Consumer inflation was a touch higher than is desirable, but it was exactly what economists were expecting.  The overall CPI rate was up .3%, while core CPI rose .2%.  Almost nobody is talking about inflation these days.  And, while a year-over-year core rate of 2.2% would have spun bond traders into a selling panic nine months ago, most of them probably couldn’t even tell you what the rate is as of today.  It’s not far out of the 1.0 – 2.0% range that the Fed “unofficially” established anyway, and the Fed has much more important things to worry about.  Primarily they need to figure out how to prevent the economy from diving into a recession.  The best way to do that is to help repair the credit markets, which is why another rate cut or two over the next four months is extremely likely.

TECHNICAL ANALYSIS

This morning we got that upward break through the 10-day moving average for which we were hoping.  The FNMA 30-year 6.0% up 9bp at the moment, but traders seem to lose the enthusiasm to continue buying at the current price of 100.78.  The 10-day MA becomes support at 100.68, and upside potential is now 28bp.  But, it’s only potential until we see some real momentum building.

The 10-year Treasury tried for 4.20% for the third time in four days, but it came up short once again.  The yield bounced higher to 4.24%, but that’s still a tad lower than where it closed yesterday.  The difference between MBS and Treasuries right now is that the 10-year’s stochastics have lingered in overbought territory due to the continuing gains they made, while MBS leveled off or even dropped.

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