More Fed rate cuts to come?

Monday, September 24, 2007

ECONOMIC DATA / NEWS

Dallas Fed President Fisher this morning said that the Fed could potentially move rates in either direction at this point, depending on what they deem more of a threat.  Fisher is one of the more hawkish Fed presidents, and he is not a voting member of the FOMC this year.  Many financial analysts (bond traders in particular) are forecasting that another rate cut before the end of the year is a virtual certainty.  Big-time bond traders like Bill Gross and Lacy Hunt say that the economy is already showing signs of stalling, and that they normally cuts rates during times like these.  There have even been forecasts that the Fed funds rate will be cut to 3.75% or lower.

This week’s home sales data and consumer spending for August should be the highlights.  Consumer spending especially will be observed for signs of a slowing economy.  And of course everyone wants to know whether the housing market is leveling off or continuing to drop.  These big reports come out tomorrow, Thursday, and Friday, and you can see the rest of the data for the week on the Economic Calendar page.

TECHNICAL ANALYSIS

Since it is early in the week and there is not economic data, bond trading is tame.  The FNMA 30-year 6.0% is down 6bp at 100.06, proving that the 200-day moving average has become a resistance again.  But, the good news is that prices have not dropped lower than Thursday’s low when we got a massive decline in prices.  The upward trend line is getting closer to prices, and should provide strong support as it gets closer to 100.00.

The 10-year Treasury yield is bouncing between positive and negative, but it is pretty stable around 4.64% since coming off highs of 4.70% last Friday.  A short-term upward trend has been established, but it is really just retracement after a long downward trend.  The yield should start to fall again over the next few weeks, especially if the economic data comes in weak.

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