Yesterday’s rally continues, as well it should. Traders and investors continue their optimistic reading of the CPI data. (See yesterday’s post.)

In hindsight, we should have seen this. Such a resoundingly low reading of core-CPI should renew arguments that the FED can leave rates alone; if not lower them more. Rates should have dropped about .100%. Rates closed -.049% on Tuesday’s 10-year Treasury. With today's 10-year Treasury at -.032% and a rate of 4.658% we are about where rates should have closed yesterday.

Yesterday, we tempered our view of rate movement with the higher than expected Housing Starts. The far more important item for bonds (via inflation) is of course core-CPI. That should have trumped all.  The bond market is apparently realizing that today.

Yesterday’s higher than expected Housing Starts is being tempered by today’s weekly MBA Purchase Application Index. The 4-week moving average trended lower at 409.54, while last week’s 4-week average was 413.06. The weekly hard number caused the 4-week to trend lower by coming in at 396.5, verses last weeks 413.0. This indicates that the housing market’s recovery is still only a probability, not a definite. While bad for the majority of our readers it does help rates some.

The only other item published this morning is almost always ignored by the bond market; weekly Crude Inventory report. We seldom report on it. As energy and gasoline prices rise, we will start paying more attention to crude and gasoline costs. They have the potential of inspiring inflation.

US Refineries reported increased production which (fortunately) is bringing gasoline prices lower. The Robb Gasoline Future is 202.26/gal. which is -3.32 or -1.61% from Tuesday. The NYMEX Crude is also lower at $62.95/bbl, -$.15 or -.242%. Wait a few days to fill up the tank if possible.

TOMORROW, 19 April, 2007

The data for tomorrow is somewhat important, but does not surprise the market very often.

The market opens with the weekly Initial Jobless Claims report from the Dept. of Labor. Last week the number caused rates to move lower by coming in higher than expected. (It is an inverse indicator meaning a higher than anticipated number is bad for the economy. Bad for the economy = good for rates.) The market is looking for a number lower than last week’s 342k. The market is expecting 320k to 325k workers to file for unemployment. That is probably a good guess, but if it is wrong, it will most likely be higher which would be good for rates again.

At 09:00 the Leading Economic Indicators (LEI) index is released. Expectations are for a +0.1% to +0.2%. Last month the LEI surprised bonds at -0.5%, lower than it was thought it would be. It is not often that LEI is outside of the predicted figure.

The Philadelphia Fed Survey can at times move markets, but not always. IT does have a very wide range of expectations so Thursday’s bonds may be moved by it. It will be published at 11:00cdt {16:00gmt} and the predictions range from 1.0 to 3.0. Last month the Philly Fed was +0.2

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

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