Slow Economic Growth to be expected

Monday, November 19, 2007

ECONOMIC DATA / NEWS

There is not going to be much happening this week.  Most economic data reports will be pushed back to next week.  Plus, the markets close early on Wednesday and Friday, and of course they are closed on Thursday.  Many traders take off Friday as well.  They want to wait for the weekend sales results anyway before getting into any long positions.

There are a couple reports coming out on Tuesday and Wednesday morning.  Housing starts have become increasingly significant, thanks to the drastic slowdown in the housing market.  It will probably affect stocks from sectors like homebuilding, furniture producers and retailers, banks, and any other industry that is tied to construction and home buying.  This could have an indirect impact on bonds, if the stock market falls sharply enough.  Weekly jobless claims is another gauge that has been thrust into the limelight.  The jobs market has been shrinking since the start of the year, and if the economy slows like economists are predicting, there will be even fewer jobs in the new year.

TECHNICAL ANALYSIS

The FNMA 30-year 6.0% is up 6bp right now, but if we get any real movement, it will probably be to the downside, as trader close out their positions before the holiday.  The 10-day moving average might provide some weak support, and the 25-day moving average, which has crossed above the 10-day, should be a moderate support level.  The upward trend is approaching six months.  We expect prices to continue higher for the next three to six months, but the trend may be broken in the short-term.  For now though, it remains firmly intact.

The 10-year Treasury yield has been fluctuating between 4.134% and 4.170% this morning.  The two-year low, which was just hit last Friday, is 4.133%.  This will be a very minor support level, but the strong downward trend could push the yield to a fresh new low.  The only thing working against further declines is the fact that stochastics have been oscillating in overbought territory for the last month.  That suggests that the yield will reverse upward very soon.

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