June 2nd, 2011 8:10 AM by Lehel S.
Not necessarily surprising that interest rate markets are seeing a little push back this morningafter the strong rallies yesterday in treasuries and mortgages. That rates are slightly higher this morning have little to do with the larger picture, the US economy is slipping back and likely will weaken through the rest of the year. If not weaken, the best we can see is stagnant economic growth. At 8:30 weekly jobless claims were down 6K to 428K, another less than expected report; claims were expected at 413K. Continuing claims at 3.71 mil frm 3.712 mil. Claims remain high, unemployment isn't declining.
At 8:30 revisions of Q1 productivity and unit labor costs; productivity at +1.8% frm +1.6% and unit labor costs +0.7% frm +1.0%. Old data that shouldn't have much impact on markets.
Today will be about tomorrow's May employment report, until yesterday's very weak ADP private jobs numbers (+38K with forecasts of +177K) the estimates for tomorrow's non-farm private jobs were in the range of 200K. After the ADP report consensus estimates were quickly revised to +120K levels. Always a crap shoot when anticipating jobs, this time is even more tedious. Traders and investors will adjust positions through the day to where they have comfort into employment; comfort is an oxymoron when it comes to the monthly employment however.
There shouldn't be much arguments now that the US economy is softening; all data over the past month has confirmed it and makes it more difficult to defend those optimistic forecasts that generally come from firms that benefit from better outlooks. There will be increasing debate now whether the Fed will do another QE move; the problem is the QE 2 $600B bond buying that ends at the end of this month didn't do anything to help the economy. While the bond-purchase program did push investors into higher-yielding assets such as stocks, the “transmission mechanism” to drive more money into the economy didn’t work. Another easing move from the Fed won't help either. There isn't much the Fed can do that it hasn't already tried and failed. It is all about the consumer and spending, consumers are not about to increase discretionary spending with high energy prices, declining home prices and uncertain employment outlooks. Amazing how the establishment doesn't understand it.
At 9:30 the DJIA opened +5, the 10 yr -14/32 2.99% +4 bp and mortgage prices -10/32 (.31 bp). Within a few minutes after the open the DJIA went negative, at 9:40 -11.
At 10:00 April factory orders, expected down 1.0%, were down 1.2%; April durable goods orders unchanged at -3.6%. No initial reaction.
Look for the day to be relatively quiet with interest rates slightly weaker and equity market indexes hanging around unchanged. Tomorrow's 8:30 May employment report should keep traders from being aggressive in either direction. Yesterday's strong rally in the bond and mortgage markets pushed the 10 yr RSI into overbought levels and betting heavily on the data tomorrow is a fool's errand.