This was a very good day for rates. The 10-year Treasury closed -.068% with the yield at 4.630%. The price – which moves in the opposite direction of rates – closed +18/32. The bond market was driven by a plethora of data. Most of the economic data was below expectations.

The only item that was not below expectations was Personal Income. It was expected to be +0.5% to +0.7% and it was reported at the high end of expectations at +0.7%.

Personal Spending is a report that comes out with Personal Income. Personal Spending was anticipated to be +0.5% to +0.6%. The Department of Commerce reported consumer spending was +0.3%. Not only was that lower than anticipated, it was obviously below income growth.  Since its growth was less than Income, the bond market interpreted that as anti-inflationary. The theory is that the lower Spending could lead to increased savings.

The final part of the Commerce Department’s report this morning was the PCE (Personal Consumption Expenditure). This gauge of inflation is watched closely by the FED. Until this month it has been widely ignored by the financial press. But, it has not always been ignored by the bond market. Core-PCE was expected to be +0.1%, but it was reported below that at 0.0%.

The Personal Income and Expenditures were out at the market’s opening. At 08:45 the Chicago PMI was released, and it was also below the forecast of 53.0 to 55.0. The National Association of Purchasing Managers Reported its purchasing Managers Index at 52.9.

Finally, at 09:00 the Department of Commerce put out the Construction Spending Report at +0.2 which was in the middle of the forecast of +0.1% to +0.4%.

[Publisher’s note: We are going to abandon our commitment to post in the morning. Most days we will still post in the first morning. But many days we will post in the afternoon of early evening.]

TOMORROW, 01 May. Happy Commie Day!!

The big item for the day will be a Speech by FED Chairman Ben S. Bernanke, titled:
Embracing the Challenge of Free Trade: Competing and Prospering in a Global Economy. The speech will be given at the Montana Economic Development Summit in Butte, Montana at 11:00 a.m. The FED’s release did not state if that is Eastern Time or Mountain. Anytime the FED chair opens his mouth, bond markets open their collective ears.

There are two important items prior to Ben Bernanke’s speech. The Institute of Supply Managers index (ISM), is issued at 09:00cdt {14:00gmt}. It is predicted to be 51.0 to 51.5; higher than last month’s 50.9. We are not certain it will be higher.

At the same time (09:00), the Nat’l Association of Realtors releases the number of Pending Home Sales. A few months back many bond investors did not even know this number existed. As the US residential housing sector tries to determine its direction the bond market pays close attention.
The housing bubble has ‘burst’. The question is, will housing continue to decline? Is it flattening? Or, is it on the verge of a rebound? The data over the last few months has been a resounding maybe to all three. Tuesday will give one more piece to the puzzle. There is only one group making a prediction at +0.4% verses 0.7% last month. The bond (and all) markets will take note of the actual number and respond accordingly.

Late in the day, long after the market has closed, the Auto & Truck Sales are out. They seldom impact the next day. Predictions are for 12.3 to 12.5 million units.

SHORT-TERM OUTLOOK [29 April 2007]

Almost every day this week has at least one important item. The heaviest day is Friday when the Employment Situation Report is released. The Employment Situation Report consists of four items; Unemployment, Payroll growth, Average Workweek, Hourly Earnings growth.

Prior to Friday, Monday sees the release of Personal Income and Spending along with PCE, Construction Spending, and Chi PMI.

Tuesday the first of May, more commonly known as May Day, or as we call it Commie Day, starts with ISM and Pending Home Sales shortly into trading. Ben Bernanke gives a speech mid-morning, Auto and truck Sales are out late afternoon.

Wednesday is the quietist, but not absent of data. It does contain the Factory Orders data.

Thursday includes Productivity.

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