Bond Market Review and Forecast – for Week Ending 12/25
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This last week ended up being more of a ride than initially expected. The 10 year treasury closed at a four year high of 3.8%.
The final revision of 3rd quarter GDP was revised down to 2.2% from 2.8% from the 1st revision. This number was actually worse than expected so there was a slight improvement in mortgage rates.
Existing Home sales rose to 7.4% for an annual rate of 6.54 million units. Obviously, a large portion of this increase can be attributed to First Time Homebuyers wanting to take advantage of the tax credit, since it was originally scheduled to end in November.
Personal Income rose 0.4% the best since April, spending rose 0.2%, less than the increase seen in October. The lackluster report helped reassure bond traders that inflation is still a ways off.
University of Michigan’s Final consumer Sentiment fell to 72.5 from 73.4 two weeks earlier, although it did rise during the month, from November’s 67.4. This is 22% above last December. Much of the gain can be attributed to consumer’s opinion of the economy in general as compared to their own finances.
This week brings another shortened holiday week for trading. Trading volume is likely to be extremely low this final week of the year, which could lead to wild swings if any data points to large variances over what was predicted. While the economic data scheduled for release this week is fairly light, there are treasury auctions which can show general demand for bonds.
The first report comes out on Tuesday is Case-Shiller HPI (Home Price Index) for October. This generally has very little effect. It is expected to show home prices declined 7.45%, which is far better than the 9.36% decline reported in September. Keep in mind this index is only for the 20 largest metropolitan areas, so Indianapolis is not included.
Then the Consumer Confidence for December, the estimate calls for 53, last month gave us a reading of 49.5. If the value comes in above 54, look for a slight move in the market. The move in treasuries would be caused by consumers spending more which would help move the economy out of its slump.
Wednesday brings us the Chicago PMI (Purchasing Managers Index) for December. This typically has very little market moving value; however, it is sometimes looked at as preview of what will come from the ISM Manufacturing survey (Institute for Supply Management Manufacturing Survey). With this being the last week of the year, and a shortened trading session, this report could potentially move the market. The estimate calls for a report of 55, with last months coming in at 56.1. Market equilibrium is based off a reading of 50, so anything above 50 shows the market expanding. An item to keep a close watch on is the one two punch of Healthcare Reform (very likely to pass shortly) and Cap and Trade, which could prolong the recession or even deepen it for the next ten years.
The biggest market mover is to be released on Thursday Jobless Claims for the week of 12/26. The estimate calls for new claims to reach 460,000, where it was 452,000 during last release. The bigger item will be release next Friday, aggregating the data for the month of December.
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