Waiting for payroll numbers

Thursday, October 04, 2007

ECONOMIC DATA / NEWS

The European Central Bank (ECB) and the Bank of England both voted to keep their overnight lending rates unchanged.  The “credit crunch” as it’s being called has had a worldwide effect.  These European nations are just as worried about a major economic slowdown as many are here in the U.S.  Europe has been trailing the U.S.’s moves over the last five years.  They did not begin raising their rates until close to the time when our Fed finally paused.  Now with the Fed finally cutting rates last month, Europe looks poised to follow in our footsteps within the next year if not much sooner.  The weakening of the dollar and lack of interest in dollar denominated investments has been the shrinking interest spread between the U.S. and other countries.  However, if the gap widens once again, a new flood of money should boost the values of the dollar and U.S. investments as a whole.  That would benefit our stock market, our bond market, and our overall economy.

A jump of almost 20,000 in weekly jobless claims proves that the jobs market is far from stable.  Claims rose to 317,000, which is around the average over the last three to four months.  Between the rise in jobless claims, ADP’s low forecast, and the weak jobs indexes from the ISM reports, there is good reason to believe that hiring was slow last month.  But it could still come close to the 100,000 that is forecast, which is considered well below what is associated with strong economic growth.

Factory orders falling 3.3% was no big surprise, because durable goods orders, which make up the majority of factory orders, were already reported a couple weeks ago as falling more than expected.  This report generally goes overlooked by the markets because it is old news.

TECHNICAL ANALYSIS

The FNMA 30-year 6.0% is up 3bp as it has been buoyed higher by the 25-day moving average.  But the price is at 100.34, so we’re getting within range of the 100.44 resistance level, which threatens to bang prices lower again.  The upward trend line is close to 100.00 and the 200-day moving average is at 100.07.  These two levels should provide strong support, and the upward trend line will continue to rise, pushing support up each day.

The 10-year Treasury yield is lingering around 4.55% this morning.  Traders are in no hurry to drop the yield through the 25-day moving average, but they have found good resistance from the 10-day moving average.  The yield could see some sideways trading for the next two or three weeks, although there could be some volatility tomorrow depending on how the payrolls number comes in.

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