More rate cuts to come?

Thursday, October 18, 2007

ECONOMIC DATA / NEWS

Jobless claims rose to 337,000 last week, but the jump needs to be taken with a grain of salt, so to speak.  The Labor Department adjusts these numbers based on seasonal factors, and holidays, like Columbus Day last Monday, often throw off estimates.  Although, even if you take the four day week into consideration, it is still a hefty increase.  New claims will head even higher as long as weak economic conditions persist.  Most economists believe the unemployment rate is going to climb to at least 5.0% from its current 4.7%.

This year, leading economic indicators have indicated little more than the fact that they are not the best gauge of future economic activity.  One month they’re -.8%, like in August, and the next month they’re up .3%, like September.  This index is supposed to be a forecast for economic activity over the next three to six months, but there has been no consistency.  The wild swings have come from volatile oil prices, stocks, and jobless claims.  Until those factors settle down, there is no reason to use this number when predicting market movement.

TECHNICAL ANALYSIS

The FNMA 30-year 6.0% is up 12bp at 100.44, which means it is bumping against the 100.44 resistance level.  It is the third time prices have slammed against this resistance, but there is stronger upward momentum this time than there was the previous times.  In fact, today’s candlestick gapped 3bp above yesterday’s close, which is one sign of this increased upward momentum.  There just might be enough force to break the resistance this time.

Yesterday, the 10-year Treasury yield was able to pass through the 10, 50, and 25-day moving averages.  The yield has traded even lower today.  It reached close to 4.50%, but is holding steady at 4.52% right now.  The double top formation of the past two months and the sharp dip in stochastics are two good reasons to believe that the yield will fall further.

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