Good Morning,
I hope that you had a terrific Thanksgiving Holiday. Here's a look back at what happened in the markets last week and a look ahead to this week's newsmakers that could move the markets.
U.S. Treasuries had another good week, in spite of some positive economic news. But buying turned fierce early Friday when Dubai World, that country's financial arm that is responsible for funding the massive construction efforts in that country, said it may have to postpone meeting its $60 billion worth of financial obligations. Asian markets tumbled, and money headed to the safe haven of Treasuries, sending the 10-year note yield, which moves inversely to price, tumbling to its lowest level since June. Occurrences such as this, however, are generally a temporary reaction to a monetary crisis.
The week began on an up note, with existing home sales in October rising 10.1% to an annual rate of 6.10 million units -- the most since February 2007. This put pressure on Treasuries, but they rebounded when St. Louis Fed president James Bullard said the Fed should continue its stimulus programs beyond current plans.
Tuesday's report on preliminary 3rd quarter GDP also boosted Treasuries, as it was revised downward to 2.8% growth from 3.5%, due to weakness in consumer spending. Traders weren't bothered by a rise in consumer confidence in November which climbed to 49.5 from 48.7.
Wednesday was the big day for reports, starting with first-time jobless claims for the week ended Nov. 21. They fell to 466,000 -- the first time below 500,000 in more than a year. Continued claims also came in at a lower-than-expected 5.42 million. In addition, the final consumer sentiment survey for November from the University of Michigan rose to 67.4 from 66.
New home sales rose 6.2% in October, boosted by a 23.2% increase in the south. The annual rate jumped to 430,000 units, supply fell to 6.7 months and the median price rose to $212,200 -- $1,000 below last year. Another report showed personal spending up 0.6% in October, while disposable income rose 0.2%. Separately, October durables goods orders for October came in below expectations -- down 0.6% and down 1.3% when transportation was excluded.
Although the durable goods report was the only bond-friendly report of the five, a record auction of 7-year notes rallied Treasuries in the afternoon, sending the 10-year yield plunging. Strong auctions on Monday and Tuesday also resulted in heavy demand for bonds on those days.
Despite low mortgage rates, applications for refinancing fell for the week ended Nov. 20, according to the Mortgage Bankers Association. Refis were off 9.5%, while purchase applications rose 9.6%.
This week could be a good one for bonds, if economists' expectations hold up -- until Friday, that is. The November employment report could undo previous gains. Economists are expecting job losses to fall to 120,000 from 190,000 in October, the fewest since October 2008. This would typically prompt selling in Treasuries, as traders will likely worry that economic recovery and rate hikes could come sooner than expected.
This week begins with Today's Chicago PMI index on November manufacturing conditions, which are expected to fall to 53 from 54.2. This decline could be reinforced Tomorrow by the ISM index of national manufacturing conditions. It's predicted to fall to 54.8 from 55.7. These numbers would support bonds, as recovery in manufacturing is key to an economic turnaround. Separately, construction spending in October is expected to tumble -0.4% from the previous 0.8% increase.
The Fed's beige book, due Wednesday, has market-moving potential. If it shows signs of economic recovery in most of the nation's 12 federal districts, that could spur selling in bonds. Indications of economic weakness, however, would have the opposite effect.
First-time unemployment claims for the week ended Nov. 28 are expected to rise to 483,000 from 466,000, while continuing claims should increase to 5.54 million from 5.42 million. This could prop up buying in Treasuries.
The other reports due generally have less impact. The ISM index on the service sector should edge up to 51.4 from 50.6. And revised productivity in the 3rd quarter is expected to decline to 8.5% from the previous 9.5% reading.
In addition to Friday's employment report, factory orders for October will be released. They are expected to show a 0.2% gain. While still positive, this is far lower than the previous 0.9% increase.
I hope that you have a great week ahead. If there is ever anything that I can do for you, please let me know.
No comments:
Post a Comment