It’s Fed Day. The Fed statement will be released at 2:00pm ET today and there will be no press conference from Mr. Bernanke nor will there be any forecasts associated with the report. We feel that the Fed will slant towards stabilizing rates at current levels or even talking them down a little. Stay tuned around 2:00pm ET as we could experience more volatility in the Bond Market.
Somewhat positive economic data is pushing Bond prices lower this morning, causing the 3.5% coupon to fall below support at the 25-day Moving Average – not a good technical sign. This selloff comes on the heels of yesterday’s Lock alert which hopefully helped you protect a big portion of your pipeline.
ADP reported that private employers added 200K jobs in July, above the 175K expected while revising the June number to 198K from 188K as gains were seen in businesses of all sizes. The report comes ahead of Friday’s Non-farm payrolls report where it is expected that 175K new workers were hired.
The Commerce Department reported this morning that Gross Domestic Product (GDP) grew by 1.7% for the first reading in the second quarter, above the 1.1% expected. However, Q1 GDP was revised lower to 1.1% from 1.8%. A 1.7% gain in GDP is still a weak number and will be taken into account when the Fed delivers its statement this afternoon. We find it comical how the networks are “giddy” over 1% handle GDP…just because it beat dismal expectations.
It reminds us of the famous quote by Peter LaFleur in Dodgeball regarding goal setting. Have a chuckle. http://www.youtube.com/watch?v=YtaCF0A5wWw
Later this morning the Chicago PMI will be released, but it will take a backseat to the Fed statement.
Technically, the break below the 25-day MA and the push back from the Falling Resistance line are not good signals in the near-term. Start the day floating and consider having your clients lined up to lock in advance of the Jobs Report on Friday – that could be a volatile day.
MBA Mortgage Applications came in at -3.7% after -1.2% prior. ADP Employment Change came in at 200K (180K expected) while the prior was revised up to 198k from 188k. GDP Annualized QoQ came in at 1.7% (1% expected) and the prior was revised down to 1.1% from 1.8%. Personal Consumption came in at 1.8% (1.6% expetced). Core PCE QoQ came in at 0.8% (1% expected) and GDP Price Index was 0.7% (1.0% expected). Later today is theFOMC rate decision, ISM Milwaukee & Chicago Purchasing Manager Index.
Overnight was very quiet and in the U.S., the market opened flat to yesterday’s close. It slowly drifted lower until the fireworks began at 8:30 AM EST with the release of the aforementioned economic data. As promised, the economic data this week has caused additional volatility with 10-Year notes making a push for 2.70% this morning. With both GDP and ADP coming in better than expected the market gapped lower today as GDP is one of the factorsthe Fed is looking at for deciding when to taper. One thing to note is the big downward revision to the prior GDP (-0.7%). At 2:00 PM EST the FOMC decision will be made (expectations of no change) and the FOMC statement will be released. The market is not expecting to get any further clarification on tapering, however if some mention of tapering is made we would expect the market to react sharply. Today marks the end of July and with it comes month end index rebalancing from the money management community.