Over the past week, the volume in several markets across the board has been much lower than normal. When talking to customers and asking their opinions of the markets, the general consensus is uncertain of market direction. Is this a reversal point in the long-term market trends, or is this a congestion period before the longer-term trend continues? Confusion reigns in many markets, as consumer confidence continues to decline and volatility increases. Many investors were humbled as a result of the extreme volatility and lack of direction. Technically speaking, market volatility tends to increase as bottoms or tops are formed. That is one reason that many analysts are predicting that a bottom in the stock market has been made. In my opinion, we need to see improvements in housing, sales, employment, and business growth to confidently believe that a major trend change has occurred.
The Monthly Unemployment report came out last Friday, and was weaker than expected. The weaker-than-expected report did not seem to faze the market after the weaker weekly numbers the day before. The report showed a decline of 80,000 non-farm payrolls versus a decline of 50,000 expected. Further, the previous month was revised lower by a decline of 13,000 jobs created. Businesses are still in a contracting mode, and therefore are not adding jobs. This caused the unemployment rate to increase to 5.1%. Although the unemployment rate is increasing, this is still a historically low unemployment rate. According to the Bureau of Labor Statistics, over the past 10 years, the seasonally adjusted unemployment rate had a high of 6.3% in June 2003. At this point, the near-term trend is for an increase in unemployment.
Global demand for physical commodities continues to remain high, even though domestic demand for goods and services is waning a bit-as consumers are thinking twice before spending hard-earned dollars. As the prices of goods such as crude oil, metals and grains continue to make new highs, the concern and risk of inflation continues to rise. The risk increases even more as people lose jobs and can't afford to make payments. Therefore, on the back of a declining jobs picture, the Fed continues to be committed to doing everything it can to promote growth first and fight inflation second. It is my understanding that the Fed believes that a slowdown in the economy will slow inflation growth as well.
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
The existing home sales number surprised the market on Monday, coming out higher than expected at 5.03 million homes versus 4.85 million homes expected on an annualized basis. I am not quite ready to say that the trend has reversed, because this is the start of the high season for buying homes. New home sales also came out better than expected at 590K versus 570K - 580K units sold. Even though we are seeing an increase in home sales, the value of the homes are declining. As home values decline, the household percent of debt relative to assets increases-creating more economic growth pressure. This decline in assets is further increasing the risks that lending institutions face as a result of many high-risk loans given in recent years. According to the foreclosure statistics, the number of loans due for resetting should be peaking this spring.
Fed Watch: The Fed's focus will likely start to shift to potential inflationary risks as the liquidity issue improves. For the time being, the market is mixed as to whether or not the Fed will continue to cut rates at the next Federal Open Market Committee meeting April 29th and 30th. According to comments made by Federal Reserve Chairman Ben Bernanke, it is believed that further rate cuts might be reserved for emergency situations.
Technical Update for June Ten-Year Notes:
Near-Term Trend: Sideways to Lower
Long-Term Trend: Higher
Support: 116-22.5
Resistance: 118-14.0; 120-01.0
The longer-term trend is still pointing higher. The sideways-to-lower action in the market is indicative of the tug of war between growth and inflation. The increased inflationary pressures are supporting longer-term yields, and in turn could pressure the TY price as the odds of further aggressive rate cuts are declining. Look to become a seller of TY notes on a close below 116-22.5.
Upcoming Key Reports:
| 4/9/08 | -- | Wholesale Trade - 7:30 am CST API/EIA Energy Stocks - 9:30 am CST |
| 4/10/08 | -- | Weekly Jobless Claims - 7:30 am CST US Trade Balance - 7:30 am CST EIA Gas Storage - 9:30 am CST |
| 4/11/08 | -- | US Import & Export Prices - 7:30 am CST |
| 4/14/08 | -- | Business Inventories - 7:30 am CST Retail Sales - 7:30 am CST |
| 4/15/08 | -- | PPI - 7:30 am CST |
| 4/16/08 | -- | CPI - 7:30 am CST Housing Starts & Permits - 7:30 am CST Real Earnings - 7:30 am CST Capacity Utilization and Industrial Production - 8:15 am CST API/EIA Energy Stocks - 9:30 am CST |
| 4/17/08 | -- | Weekly Jobless Claims -7:30 am CST EIA Gas Storage - 9:30 am CST |
| 4/23/08 | -- | API/EIA Energy Stocks- 9:30 am CST |
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
