It's Jobless Claims Thursday and the bond market is eerily quiet. I'm a big Elton John fan and he has a great song "All Quiet on the Western Front" which is about WWII. With mixed data leaning more toward a still-weak economy, it feels like we might have a battle on our hands next week between the hawks and the doves at the Fed about whether to start raising the Fed Funds rate (or not). Yesterday the FNMA benchmark bond was down in the morning by about 10 basis points or so but as the stock market conditions deteriorated throughout the day, the bond market improved - they have had a strong link recently. The benchmark bond closed up 10 basis points, closing at 103.94 - 11 basis points above the 1st resistance level but 6 basis points below the 2nd level. The bond is trading in a very narrow channel which is indicative of traders waiting for some definitive news so they can make some big trades. They don't want to gamble one way or the other until they have a better grasp of what's going on - and the big question is what is the Fed going to do next week at the FOMC meeting?
Recent data hasn't really been strong enough to warrant raising rates in my opinion (and the opinion of the doves who have made comments). The stock market has tumbled fairly significantly every time a hawk talks and makes a strong argument for raising rates which gives justification to the doves to not raise rates since a big decline in the stock market would erode wealth and buying power and hurt the already-fragile economy. As for the data, jobless claims came in as expected at 275K. The Import Price Index was -11.4 vs. consensus estimates of -10.8 showing weakness in the global economy. Also showing weakness is Wholesale Inventories of -1 vs. consensus estimates of .3 and previous of .9. Several jobs reports have been somewhat strong (at least in the eyes of the hawks) but so many other key indicators do not warrant a rate increase. One main reason the Fed wants to increase rates is to keep inflation in check but inflation is basically non-existent with the CPI well below a reading that would warrant an increase and commodity prices very low (helping to keep inflation down) as well. I personally don't think the Fed will raise the Fed Funds rate next week and will be quite surprised if they do but until a decision is released, expect the trading in the bond markets to be very tight. The benchmark bond is currently down 10 basis points, giving up all of yesterday's gains.
On docket tomorrow: We get the PPI which is supposed to be weak as well and the Michigan Consumer Sentiment Index which is estimated to be lower than the last reading. The RSI has had a bias change from approaching oversold to approaching overbought so you may want keep an eye on that. With bonds unlikely to see much movement until next week's Fed decision is released, it's probably alright to float for a while and see if you can take advantage of any gains just in case the stock market deteriorates more. As always, if you (or a client) is going to float, keep a watchful eye on the market so that you can act quickly if the bond market moves against you. Feel free to contact me if I can help with anything mortgage-related (801-853-8720 or 702-812-1214). Make it a great day - it is the beginning of the regular season in the NFL after all.