TODAY 08 MARCH

The bond market is giving up some of yesterday’s price gains due to two items. This morning’s primary driver is the stock market. The price on treasuries has declined as the flight to safety demand is reduced. Stocks and Stock futures are starting to gain strength. The S&P 500 is +11.55 to 1403.52 points.

The employment market is also moving rates to a small degree. The weekly Initial Jobless Claims were predicted to be lower than the previous week’s report of 338k. Economists were predicting 322,000 to 335,000 workers to file for first time unemployment insurance. 328,000 workers actually did file for unemployment insurance. While this is in the range of expectations, it was below the majority of predictions.

Jobless Claims are an inverse indicator; a lower number is good for the economy. Good for the economy = bad for rates.

Although most traders probably ignored the Monster Job report, it was higher than last month. The non-seasonally adjusted index was reported at 177. February’s Monster number was 168, January was at 167.

Bloomberg explains this indicator very well, “Monster collects job postings from 1,500 web sites (including Monster.com) and creates an index of job availability, akin to The Conference Board's help wanted index. The difference between the two is that one collects help wanted advertising from newspapers and the other collects from online posting. The Monster index is not seasonally adjusted.”

It does show some strengthening in the job market.

While the improving stock market is this morning’s primary driver, it is probable that some of the traders and investors are reacting to the job market and taking position before tomorrow’s all important Employment Situation Report. The 10-year Treasury is currently +.027% with the yield at 4.524%.

TOMORROW, 09 MARCH 2007.

The market opens with a very important monthly number; the Employment Situation Report. The Employment Situation Report includes Hourly Earnings, Average Workweek, Payroll change, and Unemployment Rate.

Our biggest are of interest is the Payroll change. Economists are expecting a growth of 90k to 110k, which is lower than last month’s 111k. Earlier this week the ADP Employment Reported this month’s private sector job growth at 57k. That MAY mean this Friday’s lower expectations for Payroll growth may not be low enough. The record of predictability for the ADP is mediocre.

The Unemployment Report, is a very important number, but has a very tight range of expectations from 4.6 to 4.7.

Average Hourly Workweek is anticipated to be 33.7 to 33.8. Hourly Earnings are forecast at .3% to .4% growth. Hourly earnings will rarely affect rates, Hourly Workweek seldom does.

Trade Balance numbers are also out at the opening and can, influence rates, but seldom does. Analysts are looking for a $59b to $60b trade deficit.

At 09:00 Wholesale Inventories are out and are believed to be anywhere from +0.1% to +0.5%.

Given the possible low payroll number we VERY CAUTIOUSLY recommend floating.

[Publisher’s note: With the exception of Saturday & Wednesday, we will publish only one of the outlook sections each day on a rotating basis, none on Friday. SHORT-TERM OUTLOOK (on Monday) attempts to forecast and discuss up to the next 30 days. MID-TERM OUTLOOK (on Tuesday) looks forward from 15 to 90 days, most often 30 to 90 days. The Mid-term has the most accurate predictions, just like the weather. The LONG-TERM OUTLOOK (on Thursday) will extend out the next six months, maybe one year. When we change an outlook section we will embolden the date and heading.]

LONG-TERM OUTLOOK

In the long-term, we may see some easing in the FED funds rates in late 2007.

Most economists tend to agree with Richard F. Moody of Mission Residential as do we. “We (Mission Residential) continue to hold to our view that no changes in the Fed funds rate are on tap for the first half of 2007 before what we expect to be below-trend GDP growth will open the door for two rate cuts over 2007's second half, but are increasingly open to the possibility that the FOMC could remain on hold for the remainder of 2007.”

The good news is still in the employment and production fronts. Both will conspire against each other to keep inflation low.

Steve Boxmeyer [612] 799 – 6858
steveb@LendWithIntegrity.com