Archive for the 'Monday Money Market Recap & Forecast' Category
Money Market Recap and Forecast
January 30th, 2012
Written by Greg Frost Jr.
Greece is the word again. Ongoing talks regarding Greece’s debt crisis have thus far failed to solve the problem, and time is running out. Greece needs bailout funds from the European Union and the International Money Fund by March 20. This is when Greece’s payment of 14 billion euros (approximately $18 billion in U.S. dollars) comes due. The ongoing drama that reignited Monday put investors on edge, and stocks as well as bonds lost value. The yield on the 10-year note rose 4 bps to 2.07%; yields and prices, of course, move in opposite directions.
Tuesday was another day of wait and see. There was no economic news to influence trading and no announcements from Europe to tilt the scales one way or the other. The markets didn’t move much, and many economists believe Treasury yields will remain low for the foreseeable future. The 10-year note closed at 2.06%.
The Federal Open Market Committee (FOMC) confirmed that outlook after its meeting on Wednesday. Chairman Ben Bernanke said that although the economy is improving it has a long way to go. To aid an economic rebound he said the fed funds rate will remain at the historic low of 0%-0.25% until late 2014 — approximately 15 months longer than was originally proposed.
The committee also noted that: the unemployment rate should end the year between 8.2% and 8.5% (it was at an unrevised 8.5% in December 2011); the GDP should come in between 2.2% and 2.7% for 2012; the inflation target for this year is 2.0% and the door is still open on providing additional stimulus via QE3, if necessary.
The thinking behind these moves is to provide consumers with lower interest rates on big ticket items such as automobiles, mortgage rates and student loans. This would also affect credit cards that base their rates on “rate + prime.” The prime rate, currently at 3.25%, follows the fed funds rate, either up or down.
Wall Street liked the news, and the Dow closed at its highest level since May. Bond traders liked it also, as the yield on the 10-year Treasury note dropped 13 basis points to 1.85% on early word that the fed funds rate would hold until the end of 2014. It closed at 2.01%.
Other releases, which were totally ignored, said the Federal Housing Finance Agency house price index for November rose 1.0%. December pending home sales, however, fell 3.5% after spiking by 7.3% in November.
Thursday was a different story. Most of the economic news was negative, sending stocks prices and the 10-year yield down.
First-time jobless claims for the week ended Jan. 21 halted their trend downward.
Claims rose by 21,000 to 377,000, just slightly above the forecast of 375,000. New home sales in December were another matter, however. They slid 2.2% to an annual rate of 307,000 when analysts were expecting something closer to 325,000 units. Year-over-year sales dove 6.2% to a record low annual rate of 302,000 units, while the median price fell 12.8% to $210,000.
Durable goods orders, expensive items expected to last three or more years, rose 3%. Excluding autos, orders were up 2%. And finally, the leading economic indicators rose 0.4% when a 7% hike was expected.
News from Europe was minimal, as Greek officials continue to talk to private sector creditors with the hope of reducing Greece’s debt. As long as they continue to talk, hope exists. But now Portugal has joined the list of endangered countries that will now have to be watched.
The economic news pushed the 10-year yield down to 1.93% at closing.
On Friday the much-anticipated report on 4thquarter GDP was met with disappointment. Although the economy grew at a 2.8% clip (up from a 3rdquarter reading of 1.8%), it was lower than analysts had predicted. Any results that come in below expectations are generally regarded as bad news.
One of the major concerns was high inventories. Although they add to GDP, consumption growth was weak. Consumers have to spend in order to move the economy forward. As a result, stocks took a tumble, but the yield on the 10-year note was unchanged.
The final report, the January consumer sentiment survey compiled by Thomson Reuters/University of Michigan, rose to 75 from 74. This was the fifth straight month of upward movement. This survey usually impacts the markets, but on Friday Treasuries held steady until the final few minutes before closing. The benchmark 10-year yield closed at 1.90%. It fell 17 basis points during the week.
Mortgage applications fell during the week ended Jan. 20, according to the Mortgage Bankers Association. Purchase apps were down 5.4%, while applications to refinance were off by 5.2%.
This week is loaded with reports, which could lead to volatility, or not. It usually depends on whether the results exceed expectations or miss, and by how much.
Only one report is due Monday, but it ramps up from there. Personal spending and income for December offer only one change. Spending is expected to increase 0.1%, the same as in November. The core rate, which is an important inflation indicator, is expected to do the same. Income, however, could increase by 0.4%, according to analysts. That’s a big jump from the previous 0.1% reading, but it shouldn’t be a big market mover.
The 4thquarter employment cost index is expected to increase to 0.5% from the 3rdquarter 0.3% move. This generally doesn’t impact the markets, but consumer confidence for January does. It is predicted to rise to 68.0 from December’s 64.5.
This is a big move that could impact Treasuries. Higher confidence is believed to encourage spending, which in turn grows the economy. The report could discourage investors from buying bonds.
Also due is the Chicago PMI index on January manufacturing conditions. It’s expected to drop to 61.0 from the previous 62.5, which could be favorable for bonds. The final report is the S&P Case-Shiller November housing price index for the 20 largest U.S. cities. There are no estimates available, but it’s a good bet prices will go down.
Wednesday morning the ISM index on nationwide manufacturing conditions in January is predicted to increase to 54.5 from 53.9. Although that’s not a big move, any increase in manufacturing is a good sign — especially when the other two indicators are not usually regarded as significant.
Construction spending in December should increase 0.2%, which is far below the previous 1.2% — but an increase nevertheless.
Finally, ADP, the payroll company, should release the number of jobs it added to nonfarm payrolls in January. This report is anticipated because many believe it is an indicator of jobs added on Friday’s January employment report. A high number generally causes selling in Treasuries, but no estimate has been released.
First-time jobless claims for the week ended Jan. 21 are expected to climb to 375,000 from the previous 2008 low of 352,000. If claims rise by 23,000, that would probably increase buying in Treasuries, as they have been declining for the past several weeks.
The day’s final report is 4thquarter productivity and costs.
Productivity is expected to drop to -0.2% versus a 3rdquarter gain of 2.3%. Costs, however, should rise to -0.1% from -2.5%. Rising costs and lower productivity sometimes hint of inflation, which might put downward pressure on Treasuries.
Friday is the big one. The January employment report is expected to show 105,000 jobs added to nonfarm payrolls. That’s only a hair more than half of the 200,000 jobs added in December. It is far below the 250,000 jobs per month that economists say need to be added in order to lower the unemployment rate to a workable level.
The two reports released after that will get little attention. The ISM index on the service sector in January should increase to 53.5 from 52.6. No estimates are available for December factory orders, but they did rise 1.8% in November.
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Money Market Recap and Forecast
January 16th, 2012
Written by Greg Frost Jr.
There was little action in the markets Monday. The beginning of 4thquarter corporate earnings season began after the closing bell. These quarterly reports can lead to volatility in the stock indices but they generally don’t impact U.S. Treasuries.
As has been true for months, Europe’s debt problems continue to be the primary movers of U.S. stocks and bonds. It was reported that the German chancellor and the French president said they are continuing work on a proposed pact that will require stronger budgetary restraints on eurozone countries. It could be signed this month and go into effect in March — emphasis on “could.”
The benchmark 10-year Treasury note yield, which moves in the opposite direction of price, was unchanged at 1.96%.
Stocks rose early Tuesday due to good corporate quarterly reports, more encouraging comments from Europe regarding the debt crisis and strength in the financial sector.
The only economic news showed wholesale inventories in November rose by a less-than-expected 0.1%. Even though it was a huge decline from October’s 1.2% increase, this indicator has little bearing on the markets. The 10-year note yield edged up to 1.97% at close.
Stock prices waffled Wednesday morning due to (what else?) concerns about Europe’s debt problems. This left investors with only one place to stash their money — U.S. Treasuries. The yield on the 10-year note fell to 1.93%.
The Fed’s beige book, which looks at economic conditions in the nation’s 12 federal districts, was released in the afternoon. It showed the economy expanded moderately in all districts, led by strong December retail sales. Real estate, however, was down across the board.
The yield on the 10-year note fell again in the wake of a strong auction of the benchmark Treasury. This was the first time ever that the government sold a 10-year note with a yield below 2.0%. The yield fell to 1.90% by the time the market closed.
Successful bond auctions in Europe, held early Thursday morning, indicated that the eurozone economy might be taking baby steps toward recovery. Pre-market data suggested a surge in stock prices. But poor U.S. retail sales in December and an increase of 24,000 first-time jobless claims for the week ended Jan. 7 pulled stocks into negative territory. The yield on the 10-year note edged up.
Retail sales in December rose a mere 0.1% from a revised 0.4% increase in November. Online sales fell 0.4%. Retail sales excluding autos fell 0.2%. This turned out to be not the happiest of holidays for merchants. Sales, however, were up 4.1% from one year ago.
First-time claims almost hit the key 400,000 mark again, rising to 399,000. The Labor Department admits that there is a great deal of volatility due to seasonal hiring but said the post-holiday surge in claims should smooth out by month’s end. Separately, business inventories in November rose by a weaker-than-expected 0.3% versus a 0.8% increase the previous month. The inventory-to-sales ratio held at 1-to-27.
Before the markets closed, strong demand for bonds and bills from Spain and Italy bolstered confidence not only in the new leadership of those countries but in the belief that they will not default. However, we are only two weeks into the New Year and there are many auctions to come. The more positive look at the European situation slowed buying in U.S. Treasuries and pushed the 10-year yield up to 1.93% at close.
The European situation didn’t look so rosy Friday morning. ”Good sources” said that Standard & Poor’s could lower the credit ratings of several European countries, excluding Germany. Topping the list of possibilities are France (almost a sure thing) and Austria. Investors sold stocks and piled into Treasuries.
An unexpected increase in consumer sentiment for the first half of January, as reported by Thomson Reuters/University of Michigan, didn’t slow the buying of Treasuries. The index rose to 74.0 from 69.9 due to an improved labor market, lower gas prices and stock market gains. This indicator is used to get a handle on consumer spending.
The other two reports, the U.S. trade balance for November and the import/export price indices for December, had no impact on trading. The 10-year again closed at 1.85%.
Mortgage applications climbed during the week ended January 6, according to the Mortgage Bankers Association. Purchase applications were up 8.1% and refis rose 3.3%.
This week is the third four-day week we’ve had in the last four weeks, due to Martin Luther King Jr. Day. Although the week is short, several reports could impact the markets.
Tuesday features the NY Empire State index of manufacturing conditions in January. No economists or analysts have offered predictions on this index, which rose to 9.5 in December. It has been climbing lately, as the October reading was 0.61. A big increase could provoke selling in Treasuries.
Wednesday and Thursday feature some heavy hitters. Wednesday’s first report is the producer price index (PPI) for December, which looks for inflation in wholesale prices. A 0.3% increase is expected, the same as the previous month. The PPI core rate, which eliminates volatile prices on energy and food, is expected to duplicate November’s 0.1% increase.
Industrial production could rise 0.5% in December versus a -0.2% reading the previous month. A leap like that could encourage selling in Treasuries, as manufacturing has been struggling to recover. Capacity utilization should creep up to 78.1 from 77.8. Separately, the homebuilder index, which reflects how confident builders are regarding January sales, is due. After remaining steady for several months, it has been climbing one step at a time over the past four months. In December the index hit 21.
Thursday features a host of market movers, with first-time jobless claims for the week ended January 14 up first. If most of the post-holiday layoffs are behind us, claims should more accurately reflect what’s going on regarding job.
This will be followed by the consumer price index (CPI), which checks on inflation at the retail level. It is expected to have risen 0.1% in December after showing no gain in November. The core rate could increase 0.2%, the same as in the previous month. Bond traders should be pleased with these numbers — if they are correct. Inflation robs fixed-rate assets of their value over time.
Housing starts in December are expected to hold at an annual rate of 685,000. This would be a victory of sorts, as starts rose by 57,000 units in November. There is no estimate on building permits, but they, too, increased to an annual rate of 681,000 the previous month.
The Philly Fed index on January manufacturing conditions in the mid-Atlantic region is Thursday’s final report. Although there are no estimates, this index has slowly climbed out of a deep hole. In August 2011, the index read -30.7. Last month it hit 10.3. This is one of the key manufacturing indices, so if it keeps climbing it could slow buying in Treasuries.
The final report of the week is existing home sales in December. Economists believe they will increase to an annual rate of 4.7 million units, from 4.42 million in November. That’s an increase of 28 million units, which would likely spark selling in Treasuries and push the 10-year yield higher.
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Money Market Recap and Forecast
January 9th, 2012
Written by Greg Frost Jr.
The New Year began with a bang. On Tuesday, the Dow surged well over 200 points at opening on strong manufacturing data from China and India. Then the December ISM index of manufacturing conditions in the U.S. vaulted stocks even higher. The ISM climbed to a better-than-expected 53.9 from the previous 52.7 reading. Any number above 50 indicates sector growth. In addition, the index showed employment was up, as were backlogs of orders.
Even though we entered 2012, however, the economic problems of 2011 remain. In addition, manufacturing growth in Asia is expected to slide. These scenarios will negatively affect U.S. growth.
Construction spending in November rose 1.2% from a revised -0.2% the previous month, which was more good news. In the afternoon, the minutes from the Federal Open Market Committee’s Dec. 13 meeting revealed that its members will begin releasing their individual interest rate forecasts this month. That news was well received, but the committee remains divided on the question of further easing.
Tuesday’s big Wall Street rally, which declined slightly in the afternoon, put a big hurt on bonds. The 10-year note yield, which moves inversely to price, jumped 11 basis points to 1.96% and closed there.
Wednesday was a quiet day trading-wise. The only report, factory orders for November, jumped 1.8% from the previous -0.2%. It was, however, lower than the 2.1% gain analysts expected. Some believe that a strong rebound in factory orders was responsible for the three basis point increase in the 10-year yield, which closed at 1.99%.
Thursday brought mixed news, but concerns about Europe’s never-ending problems outweighed any upbeat economic reports.
First-time unemployment claims fell by 15,000 to 372,000 for the week ended Dec. 31 — slightly below expectations. Continuing claims, those receiving benefits for more than one week, held near 3.6 million.
Payroll company ADP said it added 325,000 jobs to the private sector in December, when 180,000 were predicted. The ADP estimate is usually far higher than the actual count. In addition, outsource firm Challenger, Gray and Christmas said expected job cuts for December rose 30.6%. Separately, the ISM index for the service sector rose to a less-than-expected 52.6 from 52.0. This report, however, seldom moves the markets.
The positive economic news was neutralized by ongoing problems in Europe. The focus is now on Italy, Greece, Spain, France and Hungary, countries currently posing a threat to economic stability. When the final bell rang, the 10-year yield again closed at 1.99%.
A good employment report should have sent stocks up and put pressure on Treasuries, resulting in higher yields. But no! Positive news about the jobs market was unable to calm worries about Europe. That’s how deep concerns run.
In December 200,000 jobs were added to nonfarm payrolls, which beat expectations of 150,000. And the unemployment rate fell to 8.5% instead of rising to 8.7%, as forecast. Earnings and average hours worked also made small gains. When more people work, more money is spent and the economy grows.
Economists, however, believe that 250,000 jobs will have to be added every month to get the GDP back up to a healthy 3%, and that could take years, but it’s a good start. The most recent reading on GDP showed growth at 1.8% for the 3rdquarter of 2011.
Fears about Europe’s economy and a recession in eurozone countries led investors to seek the safe haven of U.S. Treasuries. When the market closed, the yield had dropped back to 1.96%.
The Mortgage Bankers Association, which was closed during the holidays, issued a two-week update on mortgage applications. Between Monday Dec. 19 and Friday Dec. 30 purchase apps fell 9.7% while refis were down 1.9%.
A number of economic indicators are due this week; only three of them might have a major impact on trading. But any day of the week news from Europe could push the markets up or down.
Wholesale inventories for November is due Tuesday. Because the data do not reflect consumer buying, they have little power to sway trading. The results are usually ignored.
Wednesday offers the release of the Fed’s beige book, which looks at economic conditions in the nation’s 12 federal districts. Significant improvement in the majority of districts would likely encourage selling in the bond market. The opposite, however, would also be true.
Thursday two possible market movers are due. The all-important retail sales for December will be released. Analysts, however, are not looking for strong sales. The forecast is for a 0.2% increase, which would be the same as in November, barring revisions. Excluding autos, sales should be up 0.3% — just a tad higher than they were the previous month. Although many stores and online sellers reported strong holiday sales, these predictions don’t bear them out. Should sales exceed expectations, Wall Street would get a boost. If they come in below forecasts, Treasuries would likely benefit.
First-time unemployment claims for the week ended Jan. 7 are also due and often move the markets. Last week claims dropped, but a number of reports kept the selling of bonds in check.
Friday features the preliminary Thomson Reuters/University of Michigan consumer sentiment survey for January. Analysts believe it will climb to 71.0 from 69.9. The survey showed sentiment at 64.1 at the end of November, so a move above 71.0 would be substantial enough to put downward pressure on Treasury prices, which would cause yields to rise.
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Money Market Recap and Forecast
December 19th, 2011
Written by Greg Frost Jr.
On Friday, Dec. 9, Wall Street cheered news the European Union members reached agreement on how to solve its debt problems. Relieved investors sent the Dow Jones average up close to 200 points. But given the weekend to think about it, the conclusion was: not so fast. Monday’s trades gave back Friday’s gains. Investors are now less confident that Europe’s efforts to solve the debt crisis are workable. The saga continues¦
U.S. Treasury bonds, however, benefitted, with the 10-year yield, which moves inversely to price, closing at 2.01%.
Tuesday’s news was difficult to decipher. November retail sales missed expectations by a wide margin, but stocks rose. Sales were up 0.2%, when analysts predicted a 0.4% to 0.6% increase. Nevertheless, stocks jumped at opening and bond prices fell. An hour later stocks declined after German Chancellor Merkel axed a plan to increase Europe’s bailout funds. Separately, business inventories rose 0.8% in October, up substantially from the previous 0.0% outcome.
Stocks plunged after the Federal Open Market Committee meeting due to disappointment that no changes to the Fed’s stimulus policy were announced. In addition, the Fed warned that “strains in the financial markets continue to pose significant downside risks to the economic outlook.” As expected, no change was made to the prime rate, which should hold through mid-2013. The Committee also believes inflation will settle at or below acceptable levels. In addition, the 10-year note saw strong demand. It closed at 1.96%.
On Wednesday the euro fell to its key level of $1.30 — the lowest since mid-January. That in turn made the dollar stronger and raised prices of commodities. It also unnerved the U.S. markets, due to Europe’s financial problems and tight credit in the European banks. In addition, Fed Chairman Bernanke told Republican senators that economic problems in Europe would be detrimental to the U.S.
The only economic news was of little consequence. The import price index rose 0.7%, while the export index was up 0.5%. Stocks posted their third consecutive day of losses, but worried investors bought bonds. The 10-year yield closed at 1.90%.
Thursday could have been a terrible day for bonds, as four of the five economic indicators were better than expected. But investors, anxious about the lack of progress in solving Europe’s debt problems, kept gobbling up bonds — though at a slower pace. The International Money Fund has plans to ask countries outside the eurozone to contribute to the debt fund that will help trouble eurozone nations. But several of those countries have already said they won’t do it. The 10-year note yield tumbled to 1.86%, its lowest level since October.
First-time jobless claims for the week ended Dec. 3 fell to their lowest level since May 2008. There were 366,000 claims filed, down from 385,000 the previous week. Two regional manufacturing indices for December were also positive. The Philly Fed index rose to 10.3 from 3.6 in November, and the NY Empire State index climbed to 9.53 from 0.61. Like jobs and housing, manufacturing has been slow to recover.
The producer price index, which monitors wholesale prices, rose 0.3% from -0.3% in November, which is quite a jump. But the core rate, which eliminates volatile food and energy prices and is the one the Fed watches, rose 0.1% from the previous 0.0% reading.
Finally, industrial production in November dropped to -0.2% from 0.7% in October. Analysts, however, were expecting low numbers, so the markets were prepared. After digesting the economic reports, the 10-year yield closed at 1.91%.
Good news on the inflation front sent prices of stocks and bonds up on Friday — an unusual occurrence. The consumer price index, which tracks inflation at the retail level, saw little change in November. Prices were unchanged from October — always good news. The core rate, which excludes volatile food and energy costs, rose an acceptable 0.2% versus a 0.1% increase the previous month. Bond traders are especially wary of inflation, as it robs longer-term fixed-rate investments of their value.
Stocks took a dive around mid-session, as exhausted traders headed home. Clouds of doubt loom over Europe and its ability to work out of its financial troubles, leaving U.S. bonds and their low yields one of the few safe places to invest. The 10-year note closed at 1.85%.
News regarding mortgage applications has been volatile lately. According to the Mortgage Bankers Association, refinances rose 9.3% for the week ended Dec. 9. Purchase apps, however, fell 8.2%.
It’s the week leading up to Christmas, but that doesn’t affect the number of economic indicators on tap. There is a least one report each day, and some are market movers. Monday’s homebuilders’ confidence index for December is not one of them, but in November confidence hit a 17-month high of 20.
November housing starts will be released Tuesday, with a slight increase expected. Analysts believe starts will rise to an annual rate of 632,000 units from 628,000. Estimates on building permits, which are included in the report, are not available.
Economists believe November was a good month for existing home sales. The report, due Wednesday, should show sales rising to an annual rate of 5.10 million units. This would be a substantial increase from October’s rate of 4.97 million units. Depending on the news from Europe, this increase could weigh on Treasuries, pushing yields up.
Thursday and Friday are loaded with reports prior to the three-day Christmas break. First-time unemployment claims for the week ended Dec.17 are due, and they have been volatile. A big move up or down will likely affect Treasuries.
On the other hand, the final 3rdquarter GDP reading is expected to edge up to 2.1% from the revised 2.0% reading. A move like that would not likely influence trading.
The preliminary Thomson Reuters/University of Michigan reading on consumer sentiment, released two weeks ago, jumped to 67.7 — its highest level since June. If the December final tops that number, Treasury prices would likely fall.
Leading economic indicators for November are also slated, and are expected to show a 0.3% increase — down from the previous 0.9% jump. This indicator attempts to look at the nation’s economic growth over the next six to nine months. The Federal Housing Finance Agency releases its housing price index for September. This is not influential due to dated data. In August prices fell 0.1%.
Three reports close out Friday, beginning with personal income and spending. November income is forecast to rise 0.2%, which is down from the previous 0.4% increase. Spending, however, should be up 0.3%, versus 0.1% in October. More spending boosts the economy, but a drop in income hurts.
The final report estimates are very positive, which could send Treasury yields up if they prove to be correct. Orders for durable goods, items meant to last more than three years, are forecast to have increased 4.6% in November. The previous month they fell 0.5%. And new home sales in November should jump to an annual rate of 313,000 units. That’s up from 307,000 in October.
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Money Market Recap and Forecast
December 5th, 2011
Written by Greg Frost Jr.
Stocks turned around last Monday in the wake of strong Black Friday sales that continued through the weekend. Sales were up 16% versus 2010, giving investors hope that a strong holiday shopping season will follow.
The Dow jumped 300 points at opening, as good news from Europe also kept investors busy. Continued efforts to resolve the European debt crisis were well received, pushing European and Asian stocks upward early Monday. In addition, eurozone leaders are working to craft a fiscal plan for its 17 members.
The only economic indicator showed new home sales in October rose 1.3% to an annual rate of 307,000 units. Sales were up 8.9% from one year ago, with the median price at $212,300. The inventory stands at 162,000 new homes, representing a 6.3-month supply.
Successful bond auctions by France, Italy and Belgium had a positive impact on U.S. Treasuries. In spite of the Wall Street rally, the benchmark 10-year note yield, which moves inversely to price, fell to 1.96% — down one basis point from the previous Friday’s close.
Selling in Treasuries was brisk Tuesday due in part to the huge jump in consumer confidence November. It rose to 56 from a sickly (revised) 40.9 the previous month, the highest level since July. A reading of 90 indicates a healthy, growing economy.
The Federal Housing Finance Agency reported September home prices rose 0.9%. But the S&P/Case Shiller index of home prices in the nation’s 20 largest cities showed only Detroit and Washington D.C. benefitted from price increases over the past 12 months. In addition, 3rdquarter prices fell 3.9% to 2003 levels. The yield on the 10-year note ticked up to 2.0% at close.
Good news on several levels sent the Dow Jones up more than 400 points early Wednesday. The payroll company ADP said 206,000 jobs were added to nonfarm payrolls in November, while other surveys estimate that about 125,000 new jobs will have been added. Challenger, Gray and Christmas, an outsource firm, said that announced job cuts for November fell 12.8%.
A revised report on 3rdquarter productivity showed a weaker-than-expected 2.3% increase in production, but at the same time labor costs fell 2.5%. Pending home sales in October jumped 10.4% — the biggest monthly increase since Nov. 2010.
The main impetus for the Wall Street rally was news that the U.S. Federal Reserve and other countries’ central banks coordinated a plan to reduce the cost of borrowing U.S. dollars internationally. This would lower interest rates, make more money available to borrowers and make it cheaper for world banks to trade in U.S. dollars. This should also increase the banks’ ability to make loans to consumers and businesses. In addition, eurozone finance ministers OK’d an increase to the region’s bailout fund, which may also receive IMF money. And China said it would cut its banks’ reserve requirements to loosen up money for lending.
These events dried up the need for safe-haven buying but pushed the Dow up almost 500 points at closing, its biggest gain of the year. The yield on the 10-year note edged up seven basis points to a still-low 2.07%.
Thursday’s release of first-time jobless claims for the week ended Nov. 26 climbed above 400,000 for the first time since Oct. 22. Claims totaled 6,000 more than the previous week, coming in at 402,000. The more-reliable four-week average rose by 500 to 395,000 and continued claims, those receiving unemployment insurance for more than one week, also increased.
The ISM index on November manufacturing conditions was higher than expected at 52.7, up from 50.8. Construction spending rose sharply, posting a 0.8% increase, up from the previous 0.2% reading.
Traders on Wall Street took a breather prior to Friday’s release of the November employment report. No news impacted Treasuries, either. The yield held at 2.07%.
The November employment report showed 120,000 jobs added to nonfarm payrolls, while the unemployment rate plunged to a two-year low of 8.6%. Initially, stocks jumped and Treasuries sold. Although there is agreement that the economy is improving, a look behind the curtain revealed an employment picture fraught with problems.
As many people gave up looking for jobs last month as were hired. Seasonal hiring also played a big part. In addition, state and local governments cut 20,000 jobs and have eliminated 600,000 positions over the past two years.
After studying these data, investors reiterated that employment numbers must be higher (at least 250,000 jobs a month) to get the economy rolling. The three major stock indices fell into negative territory, and buyers turned to the safety of Treasuries. Stocks were also hindered by the possibility of financial problems for the U.S. as a result of revised eurozone plans. The yield on the 10-year note, which jumped to 2.14% after the jobs report, fell to 2.05%, where it closed.
Mortgage applications fell sharply during the week ended Nov. 25 but, of course, it was Thanksgiving week. Purchase apps dropped 18.2% from the previous week, while refis were off 15.3%, according to the Mortgage Bankers Association.
A handful of economic reports are due this week, and only two of them are likely to impact trading. Eurozone nations, however, appear to be on a track that could lead to resolution on some of their economic problems. If this comes to pass, it could put selling pressure on Treasuries, and yields would rise.
The ISM index on the service sector for November and October’s factory orders are due Monday morning. The ISM service index does not have the weight of the manufacturing ISM, but it can move the markets. Forecasts indicate that it will edge up to 53.5 from 52.9, which is good but not great. Anything higher, however, could hurt Treasury yields.
October factory orders are expected to slide 0.6%, which would be a significant drop from the 0.3% increase in September. This report, however, contains little new data; so its impact is minor.
No economic releases are due Tuesday or Wednesday, so the markets must wait until Thursday when first-time unemployment claims for the week ended Dec. 3 are released. While these data can move the markets, which way they will go is anyone’s guess. Separately, wholesale inventories for October are due, but no forecasts have been made. Generally, this report is a non-event.
The Thomson Reuters/University of Michigan preliminary consumer confidence survey for December will be released Friday and could impact Treasuries in a negative way. Although no formal forecasts are available, the strong Black Friday sales weekend should boost confidence. The November final reading was 64.1.
The U.S. trade balance for October is expected to increase to $43.5 billion from $43.1 billion. This should not disturb the markets.
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Money Market Recap and Forecast
November 14th, 2011
Written by Greg Frost Jr.
Although no economic indicators were released during the first three days of last week, U.S. Treasury securities led off on a positive note. Serious concerns regarding the debt crises in Greece, Italy and now France sent worried investors piling into the safe haven of U. S. Treasuries.
Stocks were erratic on Monday, but buying in Treasuries was steady as concerns about Italy’s financial health rose. The yield on the 10-year note closed at 1.99%, down from Friday’s close of 2.05%.
Tuesday’s focus was on Italy, whose economy was deemed “too big to fail and too big to bail” by some observers. Early in the session U.S. Treasuries were under light selling pressure, but picked up steam when Italy’s Prime Minister Silvio Berlusconi said he would resign when the parliament passes economic reforms requested by the European Union, or EU. The 10-year yield closed at 2.06%.
Italy’s woes continued Wednesday when the 10-year bond yield hit 7.0%. The EU, however, said it has no plans to bail out Italy, due partly to a lack of confidence regarding its willingness to implement reforms. Italy will not receive aid unless those reforms are adopted.
Problems in Italy sent investors galloping to the safety of U.S. Treasuries again. The 10-year yield closed at 1.96%. Meanwhile Wall Street sold off, with the Dow Jones and S&P 500 giving back all their gains so far this year. Separately, wholesale inventories in September fell 0.1% when an increase of 0.5% was expected
Good news on jobs and better news from Europe turned the markets around Thursday. First-time jobless claims remained below 400,000 for the second straight week. They fell by 10,000 to 390,000 — a seven-month low. In addition, the markets appear to believe that Italy and Greece are taking positive steps to solve their debt dilemmas. The European Central Bank also purchased $3.5 billion in bonds from Italy, Greece and France to shore up their coffers. This positive news eliminated the need for safe-haven buying (at least for Thursday), which saw stock prices surge and the 10-year yield to revisit 2.06% at closing.
Other reports Thursday showed the U.S. trade balance dropping to $43.1 billion in September from $44.9 billion the previous month. This news was even more welcome, since economists were expecting the trade deficit to increase. A separate release showed U.S. export prices in October (excluding agriculture) dropping 2.1% — the largest monthly decline in almost three years. Import prices (excluding oil) dipped 0.6%.
It was a good thing that the Treasury market was closed Friday in observance of Veteran’s Day. It wouldn’t have been pretty.
Greece’s new prime minister, Lucas Papademos, was sworn in and is expected to form a new government that will pass the bailout package presented by European leaders last week. In addition, Italy’s senate passed austerity measures, paving the way for troubled Prime Minister Berlusconi to step down. A house vote on the measure was expected to take place this past weekend.
Good news from Europe sent stocks soaring. Treasury investors, on the other hand, would have sold off aggressively, pushing the yield up.
In addition, the preliminary consumer sentiment survey, released by Thomson Reuters and the University of Michigan, rose to 64.2 from 60.9 two weeks ago — its highest level in five months. This would have put additional selling pressure on bonds.
The downward trend for Treasuries will likely continue today, but France is still facing economic issues and remains a wild card.
During the week ended Nov. 4, falling mortgage rates spurred an increase in the number of mortgage applicants, according to the Mortgage Bankers Association. Purchase apps rose 4.8%, while refis were up 12.1%.
This week features a calendar loaded with market-moving economic indicators. That’s a nice change from last week, but we will also have to keep an eye on how Italy and Greece proceed with economic reforms.
No releases are due today, but Tuesday begins with a couple of big ones. Retail sales in October are expected to edge up 0.1% — a full point lower than September’s 1.1% increase. Released at the same time is the producer price index, or PPI, which tracks wholesale inflation. Analysts believe September’s high numbers will reverse. The index should fall 0.2% in October — a welcome relief from the previous 0.8% gain. The core rate, which eliminates food and energy prices, is expected to come in at 0.0%. September’s increase was 0.2%.
If these predictions are correct, Treasuries should benefit. Weak retail sales and no inflation are invitations to buy risk-free bonds. This would send the 10-year note yield down, as it moves in the opposite direction of price.
Later on Tuesday the NY Empire State index on November manufacturing conditions November is due. There are no estimates, but the index has been negative for several months. The October reading was -8.5. A big jump either way could affect the markets.
Wednesday is another big one, beginning with the consumer price index. It carries weight because it looks for inflation at the retail level. Consumer prices should show a 0.1% decline in October versus a 0.3% increase the previous month. The core rate is expected to be flat, after increasing 0.2% in September. The lack of inflationary signs should boost bonds, as inflation robs long-term investments of their value.
Industrial production in October showed a 0.5% increase, up from the previous 0.2% move. Capacity utilization edged up to 77.7% from 77.4%. Unless there is a big move in either direction, this report usually doesn’t affect trading.
First-time unemployment claims are due early Thursday. Will they stay below 400,000? If they do, Treasuries will likely sell.
Also on tap is the Philly Fed index of November manufacturing conditions. After lingering in negative territory for months, it finally broke into positive territory in October with an 8.7 reading. Will it stay there? No projections are available. This is an important index, so a big move in either direction could impact trading.
Housing starts and building permits for October are also due, with starts expected to slow to an annual rate of 605,000 units. That is a big drop from the annual rate of 658,000 in September. This indicator, however, does not move the markets like home sales do. An annual rate of 594,000 permits was issued in September, but no October estimates are available.
The week closes with the index of leading economic indicators, which attempts to look at economic conditions six to nine months ahead. Analysts believe it will rise 0.6% from September’s 0.2% increase. This report, however, doesn’t carry much weight.
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Money Market Recap and Forecast
November 7th, 2011
Written by Greg Frost Jr.
Problems with the eurozone countries pushed the U.S. markets onto a rollercoaster that saw the Dow Jones fall almost 500 points the first two days last week. The rush to Treasuries allowed the 10-year note yield, which moves in the opposite direction of price, to fall to 2.00% from 2.18% in that same time frame.
The only economic news released Monday showed that the Chicago PMI index of manufacturing conditions edged down to 58.4 in October from the previous 58.9 reading. That was not a market mover, but the announcement that Greek Prime Minister Papandreou wanted to hold a referendum on the bailout proposal reignited fear regarding Greece’s possible default.
Late Thursday, however, the referendum vote was scrapped, and there is speculation that the prime minister could resign. If he doesn’t, he might face a vote of confidence.
Economic news released Tuesday showed the ISM index on nationwide manufacturing conditions fell to 58.4 in October from 60.4, while construction spending in September rose 0.5% — far short of the 1.6% increase in August.
Two reports regarding jobs were released Wednesday. The payroll company ADP reported that 110,000 jobs were added to nonfarm payrolls in October, while outsourcing firm Challenger, Gray and Christmas said planned layoffs for October fell 63%. This pushed stock prices higher, as did the Fed report which stated that it would keep rates steady. The Fed also said that, although economic growth has strengthened, downside risks remain. After some ups and downs, the 10-year yield closed at 2.0%.
Thursday featured a number of reports, beginning with the news that the European Central Bank had cut its rates. This sent stocks soaring, and Treasury yields rose, too. First-time jobless claims for the week ended Oct. 29 fell by 9,000 to 397,000 — but there is no guarantee that they will stay below 400,000.
Revised productivity and costs for the 3rdquarter showed improvement. Productivity rose 3.1%, while labor costs fell 2.4%. No signs of inflation are present in those numbers. In addition, factory orders in September edged up 0.3% from a revised 0.1% gain in August. The final report, the ISM index on the service sector, showed a miniscule decline. It fell to 52.9 from 53.0. These reports contained mostly positive information, and the 10-year yield closed at 2.07%.
On Friday morning the highly anticipated employment report for October showed that 80,000 jobs were added to nonfarm payrolls. The number was disappointing, however, as most economists expected that jobs added would come in at 100,000. The good news was that the unemployment rate dipped to 9.0% from 9.1%. The average work week held at 34.3 hours.
The G-20 meeting in France, comprised of leaders of industrialized and developing economies, produced no substantial results. Officials from the countries represented promised to work together to find a solution to Europe’s debt problems, etc., etc., etc.
The 10-year yield jumped after the release of the jobs report, but fell after the results of the G20 were announced. The yield closed at 2.05%.
Applications to purchase homes rose 1.8% during the week ended Oct. 28, according to the Mortgage Bankers Association. Refinances, however, dipped 0.2%.
While this week is lacking in market-moving economic reports, news can come from anywhere and set the markets in motion. For the last several months the topics have been the European debt situation and the unending problems in Greece. Neither of those concerns will be solved this week, so volatility will likely continue.
The first economic indicator for the week is wholesale trade for September, which is due Wednesday. It tracks sales and inventories from the second-stage of manufacturing. But because it eliminates any connection with consumer demand, it is not important to the markets.
First-time jobless claims for the week ended Nov. 5 are due Thursday. Since April, claims have only fallen below the key 400,000 mark four times, and each time they held that level for only a week. Should claims hold below 400,000 this week, Treasuries could sell off, as investors might consider this a trend.
Thursday’s other releases are trade related. The U.S. trade deficit in September was -$45.6 billion, and no big changes are expected in October. Analysts believe it will edge up to -$45.9 billion. Whatever happens, the markets are usually oblivious. The other report, import and export price indices for October, usually fall in the “markets aren’t affected” category.
There is only one release Friday, but it can move the markets. It’s the Thomson Reuters/University of Michigan preliminary consumer sentiment report for November. The final October survey jumped to 60.9 from 57.5. Another increase like that could indicate growing consumer confidence, which would draw money away from Treasuries, sending the yields up.
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Money Market Recap and Forecast
October 31st, 2011
Written by Greg Frost Jr.
The week began with stocks and the 10-year Treasury yield both on the rise because of good earnings and encouragement that Europe’s leaders would come up with a plan, as promised. The 10-year yield closed at 2.23%.
Tuesday was a good day for Treasuries, but not for anyone else. Consumer confidence in October slid to 39.8, its lowest level since March of 2008. Analysts were expecting it to hold at 46. That opened the gates for safe-haven buying, dropping the 10-year yield, which moves inversely to price, to 2.13%.
Orders for durable goods in September were released early. They fell 0.8%, far more than expected and more than the 0.1% slide in August. Separately, new home sales rose to a better-than-expected annual average of 313,000 units in September — up from the previous 296,000 units sold in August. But the markets were focused on news from Europe regarding the debt crisis.
Later that afternoon it was reported that the finance ministers of the European Union drafted a plan to recapitalize troubled banks and increase the capacity of their rescue fund. Specifics were not released, but more news will be forthcoming. Wall Street was lifted by the news, while Treasuries sold. The 10-year yield closed at 2.20%.
Results for 3rdquarter GDP came in on target Thursday morning. The U.S. economy expanded by 2.5% from the 2ndquarter final of 1.3%. In addition, first-time jobless claims for the week ended Oct. 22 fell by 2,000 to 402,000. The real boost for stocks turned out to be more encouraging news from Europe regarding the Greek bailout and stabilization for the European nations. It’s not a done deal yet, but it was close enough to send stocks soaring. Treasuries sold, sending the yield to 3.30%.
Friday Treasuries rebounded while stocks were largely unchanged. Investors were taking a second look at the debt-crisis plan. Personal income in September rose 0.1%, but personal spending jumped 0.6%, a good sign for the U.S. economy. Another positive report came from the Thomson Reuters/University of Michigan final consumer sentiment survey for October. It rose to 60.9 — its highest level since July. The final report, the 3rd quarter employment cost index, was up only 0.3% versus a 0.7% 2nd quarter gain. When Treasuries closed Friday, the 10-year yield was down to 2.31%.
The Mortgage Bankers Association reported that during the week ended October 21 purchase apps rose 6.4% while applications to refinance were up 4.4% from the previous week.
The first report of this week is the Chicago PMI index of October manufacturing conditions, and it’s a little scary. Analysts expect it to fall to 58.0 from 60.4. Although any number above 50 indicates expansion in the sector, a two-and-a-half-point drop is never good. The effect on the markets should be moderate.
On Tuesday a second report on manufacturing is due — the ISM index on nationwide conditions in the industry. It is expected to increase to 52.2 from 51.6. These data and a forecast of a 0.3% decline in construction spending for September should not have a big impact on the markets.
On Wednesday ADP, the payroll company, issues a statement regarding the number of jobs it added to nonfarm payrolls in October. The markets usually move on this report. If the number is above 100,000, optimism could erupt as it might be even higher, and bond yields could rise. Lower numbers could attract buyers seeking the safety of bonds. Most economists believe we need a steady flow of 200,000 jobs added every month to turn the labor market around.
In the afternoon the Fed will conclude a two-day meeting, which will be followed by Fed chairman Ben Bernanke’s press conference. What he says about the economy and any plans for the Fed to provide more stimulus will likely affect the markets. It should be an interesting afternoon.
Thursday leads off with first-time unemployment claims for the week ended Oct. 29. Last week claims fell to 402,000. Should they fall below 400,000, that would likely boost optimism about the job market and encourage selling in Treasuries.
Third-quarter productivity and costs should be more bond-friendly. Productivity is expected to rise 2.8%, while costs are expected to creep up 0.3%. This is the way it should be: higher productivity with lower labor costs. The 2ndquarter report showed productivity at -0.7% and costs up 3.3%, which could indicate coming inflation.
The ISM index for the service sector is also due Thursday, and it is expected to rise to 54.0 from 53.0. This report generally doesn’t impact trading, however. Neither does the report on factory orders. September data are due, but no estimates are available.
Friday is the big one — the employment report for October. Analysts are betting that 95,000 jobs will have been added to nonfarm payrolls, up slightly from 93,000 in September. Any number that beats estimates by a few thousand should rally stocks and ignite selling in bonds. But lower numbers would likely ignite a flight to quality.
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Money Market Recap and Forecast
October 24th, 2011
Written by Greg Frost Jr.
In spite of a slew of economic reports last week, the benchmark 10-year note yield, which moves inversely to price, wavered between 2.15% and 2.20%, which was Friday’s closing yield.
On Sunday, Oct. 16, prominent European finance ministers promised a plan would be in place to secure Europe’s debt problems by Sunday, Oct. 23. Wall Street rallied on the news, but later the German finance minister said that was unlikely to happen. (He was right. Now the expected news should come on Wednesday, Oct. 26.)
The 10-year note was buoyed Monday by disappointing economic indicators and the change in Europe’s outlook on the debt crisis. The NY Empire State index of manufacturing conditions disappointed. Analysts expected substantial improvement, but it posted -8.48%, up from -8.8%. Industrial production nationwide rose 0.2%. The 10-year yield dropped to 2.16% from 2.24 the previous Friday.
Tuesday’s producer price index, which monitors wholesale inflation, showed a dramatic increase in September. It rose 0.8% from 0.0% the previous month. The core rate, which eliminates food and energy costs, rose 0.2%. Bond investors, who fear inflation because it robs long-term bonds of their value, sold early but returned to bonds as concerns about Europe’s seeming inability to solve its debt problems re-emerged.
Wednesday the consumer price index for September gave a temporary jolt to the markets. It rose 0.3% and has risen 3.9% over the past 12 months — the biggest annual increase in three years. But the closely watched core rate rose 0.2% and is up 2.0% for the year — an acceptable level for the Fed. Prices on 10-year notes fell and yields rose on the news, but declined later.
Housing starts in September beat expectations, coming in at an annual rate of 658,000 from 572,000 in August. But September building permits dropped unexpectedly to an annual rate of 594,000 from 625,000 in August.
The Fed’s beige book, which looks at economic conditions in the nation’s 12 federal districts, showed slowing in many districts. The good news? We are not looking at another recession. Although business and personal loans are down in most districts, consumer spending is on the rise.
First-time jobless claims fell to 403,000 from 409,000 during the week ended Oct. 15. Treasuries remained unchanged while waiting on news from Europe. Separately, the Philly Fed index on October manufacturing conditions climbed into positive territory, rising to 8.7 from -17.5 in September.
On Friday stocks soared on hope that a European debt plan is forthcoming. This cancelled the need for safe-haven buying.
Applications to refinance or purchase homes each fell 8.8% during the week ended Oct. 14, according to the Mortgage Bankers Association.
Influential economic news is on the docket this week, starting with Tuesday’s consumer confidence report for October. Although this indicator can be a market mover, if analysts are correct there should be little reaction. Confidence is expected to rise to 46 from 45.4. Bigger moves either way could influence trading.
The Case-Shiller index on August housing prices in the nation’s 20 largest cities follows. No projections are available, but July prices rose 9.1%. The Federal Finance Housing Authority will also release August housing prices. In July they rose 0.8%. Another pair of higher prices could ignite selling in bonds.
September new home sales, due Wednesday, should increase to an annual rate of 299,999 units from 295,000, but these sales don’t impact the markets like existing home sales do. September orders for durable goods, costly items expected to last three or more years, are also due. Analysts predict orders will fall 1.3%, which would be a big drop from the 0.1% decline the previous month. This report, however, has only moderate influence on trading.
Thursday’s advance look at 3rdquarter GDP will be the most important release of the week. Although subject to two additional revisions, all eyes will be on the initial number. It should show a 2.5% increase — almost double the 2ndquarter GDP growth of 1.3%. If the estimate hits or surpasses the mark, Wall Street would rally and bond prices would decline, pushing yields up. If the gain falls short of the estimate, investors will head for the safety of bonds due to worries about slowing economic conditions. How much yields would move depends on how high or low the GDP is.
First-time unemployment claims for the week ended Oct. 22 could make things interesting. If claims rise dramatically and the GDP also increases, the respective gains and losses could offset each other. However, in either scenario, the GDP would be the stronger influence since it is based on three months of data. Claims reflect seven days’ worth of activity. Pending home sales for August will likely get lost in the shuffle.
The week ends Friday with personal spending/income for September. Economists believe income will edge up 0.4%, after falling 0.1% in August. Personal spending, which accounts for about 70% of GDP, should rise 0.5%, after a 0.2% increase the previous month. Treasury yields would likely rise if this were to occur. The PCE, a prime inflation indicator, could edge up to 0.2% from 0.1%, which shouldn’t sound alarms.
The final consumer sentiment survey for October, compiled by Thomson Reuters/University of Michigan, could also impact trading. The mid-October reading of 57.5, which isn’t expected to change, indicates consumers are only marginally confident regarding the economy. If sentiment should rise into the low ’60s, Treasuries would sell. If sentiment declines, the yield would, too.
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Money Market Recap and Forecast
October 17th, 2011
Written by Greg Frost Jr.
U.S. Treasury securities were deserted last week as optimism over resolution of the European debt situation grew. Treasury markets closed on Columbus Day, so the benchmark 10-year Treasury yield, which moves inversely to price, held at 2.08%.
No economic releases were issued Tuesday, but the previous Friday’s employment report and positive news from Europe eased fears of depression or deflation. The 10-year yield closed at 2.16%.
News from Europe continued to drive the markets on Wednesday. Hopeful investors kept stock prices climbing, and the need for safe-haven investments collapsed. In addition, minutes of the Federal Open Market Committee (the Fed) Sept. 21 meeting hinted that a new round of purchases (QE3?) might be in the offing. This would, in theory, keep interest rates low, which should motivate consumers and businesses to borrow and then spend. The 10-year yield closed at 2.24%. The Dow Jones, however, erased all its losses for the year.
On Thursday we learned that first-time jobless claims for the week ended Oct. 1 fell by 1,000 to 404,000. Claims have been stuck in this 400,000 rut since April, seemingly unable to make solid progress. Economists believe there will be no substantial growth in employment until claims are consistently below 300,000.
Slovakia, one of the 17 eurozone nations, which had earlier voted against a proposal aimed at bailing out Greece and other financially strapped countries, changed its vote on Thursday. This is a step toward resolving Europe’s overwhelming debt problems. Stocks fell on poor quarterly reports from the financial sector. The 10-year yield slid back down to 2.16%.
Better-than-expected September retail sales gave stocks a boost Friday morning, which sent the 10-year yield back up. Sales rose 1.1% versus a 0.3% gain in August, with demand for auto sales leading the way. Excluding autos, sales rose by a still-healthy 0.6%, hinting that consumers are once again spending.
On the other hand, the Thomson Reuters/University of Michigan preliminary consumer sentiment survey for October fell to 57.5 from 59.4, contradicting the “more spending” theory. It is widely believed that confident consumers spend money. When the bond market closed, the 10-year yield had risen to 2.22%.
The Mortgage Bankers Association (MBA) reported that applications rose for the week ended Oct, 7. Purchases were up 1.2% from the prior week while refis rose 1.3%.
Last week’s news drought is over. Ten economic indicators are on tap this week. However, news from Europe — bad or good — could override the impact of almost any economic data.
Monday begins with manufacturing news from New York. The Empire State index for October is expected to improve to -5.0 from the previous -8.8. Separately, nationwide industrial production in September should rise 0.2% — the same as in August. Capacity utilization is expected to hold at 77.4%. These reports are not likely to stir the markets.
Tuesday’s producer price index, which monitors inflation at the wholesale level, is expected to have risen 0.4% in September after remaining flat in August. The more closely watched core rate, which eliminates food and energy costs, should rise 0.1% — the same as in the previous month. This index often shows increases, but the markets seldom react. They are more watchful of Wednesday’s consumer price index that checks inflation at the retail level. It is expected to increase by 0.3% — lower than the 0.4% move in August. Prices are creeping up, but no one is talking “inflation,” so the markets will likely hold.
Also due are September housing starts and building permits. Starts should rise to an annual rate of 590,000 units from 571,000. There are no estimates of single-family home permits, but they came in at an annual rate of 413,000 in August. Permits usually indicate builder confidence in upcoming home sales. A strong number of permits could push stock prices and Treasury yields up.
Wednesday afternoon the Fed releases its beige book, which looks at economic conditions in the nation’s 12 federal districts. If conditions are worsening in the majority of districts, investors might seek the safety of bonds. If conditions are improving, they probably would head to Wall Street. If there is a substantial negative or positive tone to the report, the markets could move significantly.
Three indicators are due Thursday — the final reports of the week. Existing home sales in September should decline from the August total. Analysts predict sales at an annual rate of 4.90 million units, down from 5.03 million the previous month. If they are right, the markets should hold. The other report that could impact trading is the Philly Fed index on October manufacturing conditions, which has been negative for several months. It is expected to improve to -12.0 from -17.5. Should it miraculously jump into positive territory, bonds would sell.
The final report, leading economic indicators for September, should rise 0.2 — a touch below August’s 0.3% reading. This report attempts to look at economic conditions six to nine months ahead, but rarely moves the markets.
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