The Fed decided to leave the rates unchanged which was a highly expected outcome. The post meeting comments left us to believe that the odds of changing the rate anytime soon are slim at this moment. The post meeting comments were not as hawkish as expected causing the interest rate markets to rally. The recent economic growth has been down, but the economy appears to be moderately expanding. Once again Dr. Lacker dissented, his vote calling for a 25 basis point increase in rates due to inflation concerns. The Fed commented that they were especially concerned with the core inflation rate.
The core inflation rate excludes food and energy. This number is believed to be important because the food and energy markets tend to give a much more volatile reading on inflation on a month to month basis. When the Fed makes policy changes, it is their job to look at the trend of the economy and make changes to the best of their ability to maintain a strong and stable economy. The consumer price index is a closely watched report that shows changes in the core inflation. The core CPI is approximately 77% of the total CPI figure. To review more details of the breakdown in CPI go to www.bls.gov/cpi/cpiri_2005.pdf.
Other than the FOMC meeting this week, the existing and new home sales came out mixed. The existing home sales were slightly lower than expected and the new home sales were slightly higher than expected. There has been a lot of hype that the housing market is suffering. Which yes it is down from previous levels, but far from a crisis situation. The only other report that came out shockingly high was the durable goods orders +7.8% versus +2.3% as expected. In my opinion this is a strong economic sign. Yet the interest rate markets rallied off of this news to the high end of the range bound channel. The GDP number came out at +1.6% versus +2.1%. The interest rate markets rallied as a result in anticipation that the economy may not have been as strong. The GDP is a measure of the economy for that last 3 months though and may not be indicative of future strength.
December Ten Year Note Technical Levels:
Trend Direction: Long term Trend Down, Short Term Trend is flat.
Resistance: 107-14.5, 107-28.0, 108-15.0
Support: 107-08.0, 106-26.5
Chart Copyright 2006 CQG, Inc.
Financial Reports for the week of October 30th - November 3rd:
Monday: Personal Income - 7:30 am CST
Tuesday: Employment Cost Index - 7:30 am CST
Consumer Confidence - 9:00 am CST
Wednesday: Construction Spending - 9:00 am CST
ISM Manufacturing Index - 9:00 am CST
API/EIA Energy Stocks - 9:30 am CST
Thursday: Weekly Jobless Claims - 7:30 am CST
Productivity & Costs - 7:30 am CST
Factory Orders - 9:00 am CST
EIA Gas Storage - 9:30 am CST
Friday: Monthly Unemployment - 7:30 am CST
ISM Non-Manufacturing Index - 9:00 am CST
