Friday’s Close

We saw some rate improvement on Friday afternoon. Investors continued to cover their position and the 10-year Treasury closed -.031% with the Yield at 5.132%.

TODAY 25 June 2007

Traders and investors are continuing to purchase bonds. The 10-year Treasury is -.031% with the rate at 5.102% in mid morning trading. There appears to be two driving factors.

A few weeks back rates moved up in response to foreign equity markets. It appears that the same foreign markets are going the other way today, helping our rates move lower.
Analysts are also crediting the sub-prime mortgage market for bond buying. Bloomberg reported, “U.S. Treasuries advanced as investors fled high-risk assets following losses at hedge funds betting on subprime mortgages.”

There was one major economic item this morning, the Existing Home Sales. Existing-home sales dipped during May to their lowest level in nearly four years, while inventories climbed and prices fell for a 10th straight time.

The National Association of Realtors reported Existing Home Sales fell to a 5.99 million annual rate. This was in the range of expectations which were from 5.85m to 6.0m units and did not move rats. April’s number was revises to 6.01million. This report was a 0.3% decrease from April's revised number.

The National Association of Realtors economist Lawrence Yun said that the fence sitting would-be buyers appear to be waiting for more signs of stability. "The market is underperforming when you consider positive fundamentals such as the strength of job creation, economic growth, favorable mortgage interest rates and flat home prices," Mr. Yun said.

The median home price was $223,700 in May, down 2.1% from $228,500 in May 2006. The median price in April this year was $219,800. The 2.1% drop marked the 10th consecutive year-over-year price decline.

The Dallas FED survey of economic activity in that region fell to 14 from last month’s 25.0. That was ignored by the bond market.

SHORT-TERM OUTLOOK [22 June 2007]

Next week will be busier than this one was. Every day contains some item that can impact interest rates.

Monday is one of the quietest days, but Existing Home Sales is out at 09:00cdt {14:00gmt}. It has impacted rates recently.

Consumer Confidence and New Home Sales are published on Tuesday

Wednesday is probably the quietest day as it only contains the Durable Goods Orders report.

The final 1quarter GDP report is released on Thursday.

There is one very important item on Thursday; the FOMC meeting. In all likelihood they will not change short-term rates. That does not mean that the

Finally, Friday has the Spending and Income numbers, as well as construction Spending, and Chi PMI.

We have seen some volatility of late as bond traders and investors attempt to find their footing. This amount of data will most likely give them reason to have to feel around even more.

MID-TERM OUTLOOK [18 June 2007]

There may be a few problems for rates this and next quarter.

1.) Investor sentiment leans towards higher rates. The bond market has been in a selling mood since 10 May 2007

A few months back this blog wrote that the bond market seemed to be looking for any excuse to buy bonds and thus drive rates lower. That trend has reversed itself. The bond market is now looking for any reason to sell, and correspondingly raise rates.

On 31 May 2007 there was one such example. There were six items published that day. Even though most of the economic items came in as expected, three did not. Of the three, two were lower than expected and should have moved rates lower. Instead rates continued their upward trend. Clearly, investor sentiment has turned bearish on buying bonds.

Investors are becoming bearish and are starting to realize that inflation exists. They are starting to see that the FED is more determined fight inflation. More and more FED officials are making hawkish comments.

2) The housing bubble has ‘burst’. 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.

IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

The slide in Real estate has not yet seemed to affect retail sales or consumer confidence. Inflation hawks can’t win for losing.

On 08 May 2007 the bond market responded to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage. Given the current oversupply of houses, verses the very number of buyers we have a buyers market now as it is. Reducing the number of buyers hits the real estate market with a double whammy.

Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

3) The US and the global economy appear to in recovery. This has to be the shortest, least felt ‘recession ever experienced. (The 2.2% main stream media aside, there never was a recession; GDP never went below 0.0 %.)

A major part of the growing global economy is China. On 12 June, the Chinese consumer price index for May was +3.4% in year-to-year analysis, according to data published by the [Chinese] National Bureau of Statistics. Most of the gains were due to food prices, and haven't spread to a broad range of consumer goods. What we would call Chinese core-CPI was +1.0%. China’s food prices jumped 8.3% from a year ago.

Even though Chinese core-CPI was low, the headline inflation rate is now higher than the interest rate banks pay on deposits, currently set at 3.06% for one year. That gives Chinese consumers a big incentive to spend or invest that money rather than let it sit in the bank.

Further, and of great Long-Term bearing on US interest rates – is how this will diminish demand for US Treasuries. When demand for any commodity decreases, the price also declines. When bond prices deteriorate as they have, rates go up.

4) In February this blog wrote:

“We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. Corn is a staple of many food products that we eat. Increases in corn prices will not just impact corn flakes, but pop/soda, beef, and pig, chicken, candy bars, just about anything we eat.”

Grain stockpiles in many countries have fallen to multiyear lows, even as increased production of biofuels such as ethanol has added a new source of demand.

Even the best estimates of corn based fuel say that it will never replace the need for fossil fuels. At best it can only reduce the demand some. It would be much better for us to reduce our demand on foreign oil and decrease the price at the pump by; 1.) Drilling where we know that there is oil, 2.) Build refineries, 3.) Eat food as food.

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

There were virtually no economic events today. Still, the 10-year Treasury closed higher as bond traders took some profit. The 10-year Treasury closed +.037% with the rate at 5.123%.

The only item was the MBA Purchase Application Index. It was ignored by the bond market, but held a small amount of good news for the real estate market. While the week-to-week change was lower than the previous week the 4-week moving average was higher. Last week the index was published at 464.7, the 4-week moving average was 440.85. This week the index was 450.9, but the 4-week moving average increased to 444.05.

TOMORROW, 21 June 2007

Thursday holds the week’s only important economic items.

The weekly Initial Jobless Claims is published at the market’s opening and is expected to about the same as last week’s 310k. Predictions range from 310k to 311k. A tight range of predictions like this has a small potential for surprises.

The Leading Economic Indicators is released at 09:00cdt {14:00gmt}. It is expected to be higher than last month with expectations ranging from 0.0% to +0.3%. Only one source is looking for the 0.0%. Often, they are correct when they are lower than the others. That would be good.

Finally, the Philadelphia Fed is also out, and is forecast to be 5.2 to 9.0. All are higher than last month’s 4.2. Most of the forecasts are 7.0 to 9.0. Only one has the 5.2, and it is the same one with a low prediction for LEI. That could also be good.

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

YESTERDAY, 18 June 2007

The Housing Market Index was reported at 28, down from the last report of 30. It does not appear to have shaped rates at all when looking at the intra-day trading.

The 10-year Treasury closed -.029% at 5.142%.

TODAY, 19 June 2007

Rates are down for the 4^th trading day in a row. But, rates are still far higher than they were at on 11 May 2007 when the 10-year Treasury closed at 4.674%. The trend has been for higher rates since that day. The 10-year Treasury is -.021% with the rate at 5.121%.

The hosing data is a past of the driver of rates this morning. Housing Starts were expected to be 1470k to 1490. Only one source was looking for the 1470 number. Most were looking for at least 1475k. 1474k homes were started in May, which provided a small surprise.
The bigger surprise was in the Housing Start revision for April. Originally, April’s new home starts were reported at 1528k. That was revised down to 1506k.

Building Permits may have provided a small amount of moderation in the day’s trading. It was predicted to be 1460k to 1480k. 1501k new permits were taken out.

TOMORROW 20 June 2007

There is very little data tomorrow. The MBA Purchase Application Index is out but often is ignored by the bond market.

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

There is no economic data out today, only a few auctions. The first auction today was the 4-week Treasury Bill. It had apparently no affect on the benchmark 10-year Treasury.

The 10-year Treasury opened with rates moving much lower. At one point the rate on the 10-year Treasury was 5.133% which was -.038% lower than Friday’s close. Rates did change direction and at one point the 10-year Treasury was 5.188%; up .017% from Friday’s close, and +.055% in intra-day trading.

The 10-year Treasury has fluctuated from -.005% to +.010% since the bond market opened. At mid-day trading the 10-year treasury is at -.002% with the rate at 5.169%. While it is hard to say, it does seem that volume is active.

The Housing Market Index is published at 12:00cdt {17:00gmt}. It has only rarely been noticed by the bond market. This blog will post on this at a later time.

TOMORROW, 19 June 007.

The only item out is the Housing Starts and Building Permits. Historically, both have been viewed lightly by traders. That has changed recently as economists and analysts are trying to gauge the health of the housing sector.

Housing Starts are expected to be 1470k to 1490k’ that is lower than last month’s 1528k. Building Permits are mostly forecast to be higher than last month’s 1457. Predictions range from 1450 to 1480

SHORT-TERM OUTLOOK [18 June 2007]

The week will be a quiet one in terms of economic data. Friday actually has none. The week will be a good chance to test the new direction of Investor Sentiment. Until the last few days, the investor sentiment has appeared to be in the direction for raising rates. We have seen some reversal of about .100% on the 10-year Treasury.

A week with little data can give us a chance to see if that will hold.

MID-TERM OUTLOOK [18 June 2007]

There may be a few problems for rates this and next quarter.

1.) Investor sentiment leans towards higher rates. The bond market has been in a selling mood since 10 May 2007

A few months back this blog wrote that the bond market seemed to be looking for any excuse to buy bonds and thus drive rates lower. That trend has reversed itself. The bond market is now looking for any reason to sell, and correspondingly raise rates.

On 31 May 2007 there was one such example. There were six items published that day. Even though most of the economic items came in as expected, three did not. Of the three, two were lower than expected and should have moved rates lower. Instead rates continued their upward trend. Clearly, investor sentiment has turned bearish on buying bonds.

Investors are becoming bearish and are starting to realize that inflation exists. They are starting to see that the FED is more determined fight inflation. More and more FED officials are making hawkish comments.

2) The housing bubble has ‘burst’. 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.

IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

The slide in Real estate has not yet seemed to affect retail sales or consumer confidence. Inflation hawks can’t win for losing.

On 08 May 2007 the bond market responded to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage. Given the current oversupply of houses, verses the very number of buyers we have a buyers market now as it is. Reducing the number of buyers hits the real estate market with a double whammy.

Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

3) The US and the global economy appear to in recovery. This has to be the shortest, least felt ‘recession ever experienced. (The 2.2% main stream media aside, there never was a recession; GDP never went below 0.0 %.)

A major part of the growing global economy is China. On 12 June, the Chinese consumer price index for May was +3.4% in year-to-year analysis, according to data published by the [Chinese] National Bureau of Statistics. Most of the gains were due to food prices, and haven't spread to a broad range of consumer goods. What we would call Chinese core-CPI was +1.0%. China’s food prices jumped 8.3% from a year ago.

Even though Chinese core-CPI was low, the headline inflation rate is now higher than the interest rate banks pay on deposits, currently set at 3.06% for one year. That gives Chinese consumers a big incentive to spend or invest that money rather than let it sit in the bank.

Further, and of great Long-Term bearing on US interest rates – is how this will diminish demand for US Treasuries. When demand for any commodity decreases, the price also declines. When bond prices deteriorate as they have, rates go up.

4) In February this blog wrote:

“We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. Corn is a staple of many food products that we eat. Increases in corn prices will not just impact corn flakes, but pop/soda, beef, and pig, chicken, candy bars, just about anything we eat.”

Grain stockpiles in many countries have fallen to multiyear lows, even as increased production of biofuels such as ethanol has added a new source of demand.

Even the best estimates of corn based fuel say that it will never replace the need for fossil fuels. At best it can only reduce the demand some. It would be much better for us to reduce our demand on foreign oil and decrease the price at the pump by; 1.) Drilling where we know that there is oil, 2.) Build refineries, 3.) Eat food as food.

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

Rates are lower this morning given most of the inflation and economic data has been good for rates.  The 10-year Treasury moved +.024% higher than yesterday’s close shortly after opening. Shortly after, the rate dropped lower and has remained at that level all morning.  The 10-year Treasury is -.040% with the rate at 5.177%.

Like yesterday, the bond market was initially responding to the headline report of the Consumer Price Index.  The CPI was at the high end of the predicted +0.6% to +0.7%, at 0.7%.  Then, the more important core-CPI was noticed to be below the estimates of +0.2%, with the labor department reporting it at +0.1%.

Traders and investors possibly ignored the higher than forecast NY Empire Index at 25.8.  The market was looking for the NY Fed to report its index at 10.0 to 14.0.  It is possible that the bond rate increase at the open was in response to the Empire Index.

Traders also ignored an increase in the Net Foreign purchases, but it could have helped rates.  Last report it was $67.6B.  It was $84.1B this report. 

The quarterly, Current Account was below the anticipated $199.5B to $203.0B.  The actual number was $192.6B.

About 45 minutes into trading the Industrial Production and Capacity Report was released and gave further push towards lower rates.  Both were below the expected levels.  Analysts were expecting Industrial Production at +0.1% to +0.2%; it was flat at 0.0%.  Capacity Utilization was forecast at 81.5% to 81.5%, it was slightly lower at 51.3%

The market waited for the very volatile preliminary U. of Michigan Consumer Sentiment Survey.  It was predicted to be 87.7 to 89.0.  The U of Mich. published its survey at 83.7.  This give the final downward push on rates.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com

The bond market initially responded to the headline PPI number. Analysts were predicting Producer Price Index to come in at +0.5% to +0.7%. They were surprised when they found that prices at the wholesale level went up +0.9%. That initially caused the 10-year Treasury moved up to 5.251%. which was +.051% from yesterday’s close.

The bond market calmed down when the details were read. The core-PPI was exactly as expected at +0.2%. The core-PPI is more often looked at as the core eliminates the more volatile items like energy in this case.

The bond market looked at the weekly jobless numbers for further direction and found none. The Labor Department reported that Initial Jobless Claims were 311k which was within the range of expectations of 310k to 315k.

As a result, the 10-year Treasury market was up only slightly at +.017% with the rate at 5.217%

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

There can be only one comment to today’s bond trading activity; confusion – at least on the surface. All economic data indicate a growing economy. Rates responded in kind in the bond market’s early morning trading. The rate on the 10-year Treasury moved to 5.308% which was +.060% within just a few minutes after trading opened. Within the first ½ hour of trading the rate moved up to the day’s high of 5.316% or +.068 from Tuesday’s close.

Within minutes the 10-year Treasury reversed course. Bond traders and investors moved in for bargain shopping and that moved the price upward. When price goes up rates go down. The 10-year Treasury has moved to -.035% with the yield at 5.213%.

Traders and investors initially responded to Retail Sales by moving rates upward at the opening. Retail Sales were expected to be +0.6% to +0.7%. The Commerce Department reported total Retail Sales were double the expectations at +1.4%. Core-Retail Sales were predicted at +0.6% to 1.0%. While not double predictions, core-Retail Sales were +1.3%.

Import Prices helped the rate increase by being higher than the anticipated +0.2% to +0.3%. This measure of inflation was +0.5%

Business Inventories gave further rate increase argumentation at +0.4% while forecast at +0.2% to +0.3%.

While bad for rates, the MBA Purchase Application Index could be very good for readers of this blog. Both the weekly and 4-week moving averages were up, and up hard. The weekly number was 464.7. That is far higher than last weeks 433.6, and the highest since 10 January when the number was 472.8. The 4-week moving average was higher than it has been in over a year at 440.85.

Here’s to hoping that this trend continues. And here’s to hoping that the bond market continues to ignore this item.

That brings us to today’s puzzle; why are rates dropping when they should be much higher today?
Nick Godt of MarketWatch wrote a commentary on this a couple of hours before this post. He quoted Sal Guatieri, senior economist at BMO Nesbitt Burns who explained bond activity with this analysis, “That's odd, the reports are showing a pick-up in economic momentum. It certainly weighs against rate cuts. The backup in bond yields is also doing some of the Fed's work in containing inflation pressures."
MarketWatch’s Nick Godt went on to say, “Bonds normally drop [making rates increase] on strong economic data, which can lead to inflationary pressure. But the bond market has already been under pressure over the past two weeks, sending the 10-year yield to a 5-year high.
These levels have typically attracted bond buyers, keeping the yield in check.”

This blog has commented on Investor sentiment in the Mid-Term Outlook. It is possible that the price reached its bottom, while rates have met their top, and sentiment has turned.

MID-TERM OUTLOOK [13 June 2007]

There may be a few problems for rates for this quarter.

1.) Investor sentiment leans towards higher rates. The bond market has been in a selling mood since 10 May 2007

A few months back this blogger wrote that the bond market seemed to be looking for any excuse to buy bonds and thus drive rates lower. It appears that that trend has reversed itself. It seems now that the bond market is looking for any reason to sell, and correspondingly raise rates.

31 May 2007 one such example. There were six items published that day. Even though most of the economic items came in as expected, three did not. Of the three, two were lower than expected and should have moved rates lower. Instead rates continued their upward trend. Clearly, investor sentiment has turned bearish on buying bonds.

Investors are also bearish as they continue to be concerned with the FED’s ability to fight inflation. The confusion of the FOMC meeting on 21 March, and the subsequent release of the Minutes on 11 April, caused the bond market to issue a collective HUH?!?! Economists and FED watchers echoed the HUH!?!, and added a wha...?.

There has been one more Fed meeting on 09 May, and it caused rates to move up a bit. The FED action that has impacted rates more dramatically has been comments by FED officials since the last FOMC meeting. FED officials, most often Jeffrey Lacker have spooked the Bond market and pushed rates up in the last few weeks.

2) 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. IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

On 08 May 2007 the bond market responded to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage. Given the already oversupply of houses, verses the very number of buyers we have a buyers market now. Reducing the number of buyers hits the real estate market with a double whammy.

Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

The results in May were mixed. New Home Sales were for April were up, while Existing Home Sales were down. At the same time, the Mortgage Bankers Association Application Index has been moving upward, indicating more people are looking.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

3) The US and the global economy appear to in recovery. This has to be the shortest, least felt ‘recession ever experienced. (The 2.2% main stream media aside, there never was a recession, GDP never got below 0.0 %.)

Part of the growing global economy is China. On 12 June, the Chinese consumer price index for May was +3.4% in year-to-year analysis, according to data published by the [Chinese] National Bureau of Statistics Tuesday. Most of the gains were due to food prices, and haven't spread to a broad range of consumer goods. What we would call Chinese core-CPI was +1.0%. China’s food prices jumped 8.3% from a year ago.

Even though their core-CPI was low, the headline inflation rate is now higher than the interest rate banks pay on deposits, currently set at 3.06% for one year. That gives Chinese consumers a big incentive to spend or invest that money rather than let it sit in the bank.

Further, and of great Long-Term bearing on US interest rates – is how this will buying will diminish demand for US Treasuries. When demand for any commodity decreases, prices also declines. When bond prices deteriorate as they have, rates go up.

4) In February we wrote:

We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. Corn is a staple of many food products that we eat. Increases in corn prices will not just impact corn flakes, but pop/soda, beef, and pig, chicken, candy bars, just about anything we eat.

None other than the Western Hemispheres worse dictators; Fidel Castro agrees with us. (For once He understands economics.) An open letter signed by Cuban leader, titled "More Than 3 Billion People in the World Condemned to Premature Death from Hunger and Thirst," circulated in the media Thursday, 05 April 2007. See our post on that date.

Much of the afore-mentioned increase in Sino food prices are something we mentioned months ago in our Mid-Term Outlook. Attention-grabbing increases in prices for pork, for instance, are being caused mostly by supply shortages -- something that changing interest rates would be unlikely to affect, Mr. Zhou said. Grain prices have also been on the rise, but this reflects shifts in global supply and demand that Chinese authorities also have little ability to influence. Grain stockpiles in many countries have fallen to multiyear lows, even as increased production of biofuels such as ethanol has added a new source of demand.

Even the best estimates of corn based fuel say that it will never replace the need for fossil fuels. At best it can only reduce the demand some. It would be much better for us to reduce our demand on foreign oil and decrease the price at the pump by; 1.) Drilling where we know that there is oil, 2.) Build refineries, 3.) Eat food as food.

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

The bond market has been in a selling mood since 10 May 2007. That selling mood has caused prices to fall. Rates – which always move in opposite direction as prices – have moved up.

Prices on Treasuries are in a freefall again today. Rates on bonds opened higher and have remained at that level in the first couple of hours of trading. The 10-year Treasury is +.084% with the rate at 5.222%.

Prices on U.S. Treasuries are falling today on speculation that rising inflation in the global economy will prompt all central banks to push up interest rates. Further evidence of this came overnight as China’s headline inflation rate touched a two-year high in May. China's central bank has said it wants to keep inflation under 3% in 2007, and inflation has now been at or above that level for three straight months.

The Chinese consumer price index for May was +3.4% in year-to-year analysis, according to data published by the National Bureau of Statistics Tuesday. Most of the gains were due to food prices, and haven't spread to a broad range of consumer goods. What we would call Chinese core-CPI was +1.0%. China’s food prices jumped 8.3% from a year ago.

Even though their core-CPI was low, the headline inflation rate is now higher than the interest rate banks pay on deposits, currently set at 3.06% for one year. That gives Chinese consumers a big incentive to spend or invest that money rather than let it sit in the bank.

Further, and of great Long-Term bearing on US interest rates – is how this will buying will diminish demand for US Treasuries. When demand for any commodity decreases, prices also declines. When bond prices deteriorate as they have, rates go up.

Much of the increase in Sino food prices are something we mentioned months ago in our Mid-Term Outlook. Attention-grabbing increases in prices for pork, for instance, are being caused mostly by supply shortages -- something that changing interest rates would be unlikely to affect, Mr. Zhou said. Grain prices have also been on the rise, but this reflects shifts in global supply and demand that Chinese authorities also have little ability to influence. Grain stockpiles in many countries have fallen to multiyear lows, even as increased production of biofuels such as ethanol has added a new source of demand.

MID-TERM OUTLOOK [12 June 2007]

There may be a few problems for rates for this quarter.

1.) Investor sentiment is now leaning towards higher rates.

A few months back this blogger wrote that the bond market seemed to be looking for any excuse to buy bonds and thus drive rates lower. It appears that that trend has reversed itself. It seems now that the bond market is looking for any reason to sell, and correspondingly raise rates.

31 May 2007 gives one such example. There were six items published that day. Even though most of the economic items came in as expected, three did not. Of the three, two were lower than expected and should have moved rates lower. Instead rates continued their upward trend. Clearly investor sentiment has turned bearish on buying bonds.

On 12 June 2007, U.S. Treasuries declined again as they have for quite some time as investors abandoned wagers that the Federal Reserve will cut interest rates this year.

Options prices on Fed funds futures show traders see a 44 percent chance the Federal Reserve will raise its benchmark interest rate a quarter-point to 5.5 percent by the end of the year. A month ago, there were no expectations of a rate increase and 58 percent odds of a rate cut.

2) 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. IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

On 08 May 2007 the bond market responded to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage. Given the already oversupply of houses, verses the very number of buyers we have a buyers market now. Reducing the number of buyers hits the real estate market with a double whammy.

Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

The results in May were mixed. New Home Sales were for April were up, while Existing Home Sales were down. At the same time, the Mortgage Bankers Association Application Index has been moving upward, indicating more people are looking.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

3) IF investors continue to be concerned with the FED’s ability to fight inflation. The confusion of the FOMC meeting on 21 March, and the subsequent release of the Minutes on 11 April, caused the bond market to issue a collective HUH?!?! Economists and FED watchers echoed the HUH!?!, and added a wha...?.

There has been one more Fed meeting on 09 May, and it caused rates to move up a bit. The FED action that has impacted rates more dramatically has been comments by FED officials since the last FOMC meeting. FED officials, most often Jeffrey Lacker have spooked the Bond market and pushed rates up in the last few weeks.

4) In February we wrote:

We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. Corn is a staple of many food products that we eat. Increases in corn prices will not just impact corn flakes, but pop/soda, beef, and pig, chicken, candy bars, just about anything we eat.

None other than the Western Hemispheres worse dictators agrees with us. (For once He understands economics.)

An open letter signed by Cuban leader Fidel Castro, titled "More Than 3 Billion People in the World Condemned to Premature Death from Hunger and Thirst," circulated in the media Thursday, 05 April 2007. In his first major statement in months, Castro rejects the use of crops for biofuel production. …he is concerned that President Bush and the US Auto Makers enthusiasm for flexfuel vehicles will have disastrous environmental and food-price consequences for developing countries.

Castro and his ally, Venezuelan President Hugo Chavez, probably are concerned that the Brazilian-U.S. ethanol initiative, launched during Bush's recent Latin American tour, threatens Venezuela's influence in Central American and Caribbean countries through its subsidized oil Petrocaribe initiative.

Even the best estimates of corn based fuel say that it will never replace the need for fossil fuels. At best it can only reduce the demand some. It would be much better for us to reduce our demand on foreign oil and decrease the price at the pump by; 1.) Drilling where we know that there is oil, 2.) Build refineries, 3.) Eat food as food.

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

Rates opened much higher this morning in response to international markets and to More FED Speeches. There are no major economic items today. There are the usual Treasury Auctions. In early morning trading the yield on the 10-year Treasury was as high as 5.160% which was +.042% above Friday’s close.

Action Economics reported on a speech by Cleveland Federal Reserve President Sandra Pianalto. She said that economic fundamentals remain "solid" while inflation remains the major risk to the economy.  That was not good for rates.

News that Japan's gross domestic product was revised to a 3.3% annualized growth rate also fed concerns that upward pressure will remain on bond yields and interest rates in light of economic expansion around the world.

Late morning trading began to moderate some. The 10-year Treasury is +.019% with the yield at 5.135%.

There is as of yet, no commentary as to why the moderation on the ‘wires’. In all likelihood, this is simple correction as traders come in for bargain shopping.

SHORT-TERM OUTLOOK [06 June 2007]

We are reversing our view of Retail Sales for Wednesday. On 05 June we thought that there was some good news for the Retail Sales report on 13 June. Both UBS Store Sales and Redbook Survey have been trending downward in the last few weeks. This morning’s UBS Store Sales were -0.5% in week-to-week measurement, and +2.3% in year-to-year analysis. Redbook was up only 1.8%.

Neither number has any estimates, and both are largely ignored by the bond market. Still the can give an indication to next weeks sales numbers. When the estimates come out, they should be lower.

But, several of the private same stores sales reports have been coming in very strong. One of the analysts this blog follows is the Twin Cities radio show “Money Talk Live with Josh Arnold” AM 1280 Sunday evening at 17:00cdt {5:00pm, 22:00gmt}. On Sunday’s show Josh was reporting that several of the big chain, same stores sales were demonstrating very strong growth patterns.

That could contradict what UBS Store Sales and Redbook Survey are saying.

Economic items are light on Monday and Tuesday. This week will continue to respond to international economic events, on those two days. Bonds probably will continue the sell off. That will not help rates.

Economic events will get heavier and heavier as the week goes on. Friday will be the heaviest if with CPI & core-CPI, and Current Account at the opening. Also on Friday morning the NY Empire Index, Net Foreign Purchases, Industrial Production, Capacity and Michigan Consumer Sentiment-preliminary Index will all be out. These are at least moderately important to heavily important, and all can move rates.

Thursday’s PPI, and attached but more important core-PPI, and weekly Jobless numbers will be published.

Wednesday begins the heavy part of the week with Retail Sales, and the more important core-Retail Sales, and Import and Export Prices.

MID-TERM OUTLOOK [11 June 2007]

There may be a few problems for rates for this quarter.

1.) Investor sentiment leans towards higher rates.

A few months back this blogger wrote that the bond market seemed to be looking for any excuse to buy bonds and thus drive rates lower. It appears that that trend has reversed itself. It seems now that the bond market is looking for any reason to sell, and correspondingly raise rates.

31 May 2007 one such example. There were six items published that day. Even though most of the economic items came in as expected, three did not. Of the three, two were lower than expected and should have moved rates lower. Instead rates continued their upward trend. Clearly investor sentiment has turned bearish on buying bonds.

MarketWatch added to this view on 11 June 2007: "Basically, it's a continuing reassessment of the possibilities that the Fed will ease, and of whether it might actually tighten, and that there might be more inflation out there that was expected until recently," said Michael Gregory, fixed-income analyst at BMO Nesbitt Burns.

2) 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. IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

On 08 May 2007 the bond market responded to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage. Given the already oversupply of houses, verses the very number of buyers we have a buyers market now. Reducing the number of buyers hits the real estate market with a double whammy.

Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

The results in May were mixed. New Home Sales were for April were up, while Existing Home Sales were down. At the same time, the Mortgage Bankers Association Application Index has been moving upward, indicating more people are looking.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

3) IF investors continue to be concerned with the FED’s ability to fight inflation. The confusion of the FOMC meeting on 21 March, and the subsequent release of the Minutes on 11 April, caused the bond market to issue a collective HUH?!?! Economists and FED watchers echoed the HUH!?!, and added a wha...?.

There has been one more Fed meeting on 09 May, and it caused rates to move up a bit. The FED action that has impacted rates more dramatically has been comments by FED officials since the last FOMC meeting. FED officials, most often Jeffrey Lacker have spooked the Bond market and pushed rates up in the last few weeks.

4) In February we wrote:

We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. Corn is a staple of many food products that we eat. Increases in corn prices will not just impact corn flakes, but pop/soda, beef, and pig, chicken, candy bars, just about anything we eat.

None other than the Western Hemispheres worse dictators agrees with us. (For once He understands economics.)

An open letter signed by Cuban leader Fidel Castro, titled "More Than 3 Billion People in the World Condemned to Premature Death from Hunger and Thirst," circulated in the media Thursday, 05 April 2007. In his first major statement in months, Castro rejects the use of crops for biofuel production. …he is concerned that President Bush and the US Auto Makers enthusiasm for flexfuel vehicles will have disastrous environmental and food-price consequences for developing countries.

Castro and his ally, Venezuelan President Hugo Chavez, probably are concerned that the Brazilian-U.S. ethanol initiative, launched during Bush's recent Latin American tour, threatens Venezuela's influence in Central American and Caribbean countries through its subsidized oil Petrocaribe initiative.

Even the best estimates of corn based fuel say that it will never replace the need for fossil fuels. At best it can only reduce the demand some. It would be much better for us to reduce our demand on foreign oil and decrease the price at the pump by; 1.) Drilling where we know that there is oil, 2.) Build refineries, 3.) Eat food as food.

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

Yields on the 10-year Treasury touched near the 5-year high as concerns increased that faster global economic growth will hurt demand for fixed-rate investments. In short, the bond market is beginning to realize that there will probably not be any rate cuts soon.

Like Thursday, the primary driver for rates was foreign markets. It appears that several economies over both seas are improving. That means, “In the next few years, foreign money will be moving from bonds, at the margin, to more growth-like, equity-like investments,'' Bill Gross, chief investment officer at Pacific Investment Management Co. and manager of the world's largest bond fund, said on CBNC yesterday. ``If they're moving in that direction, why shouldn't we?''

As they move money out that brings the price of bonds – and mortgage backed securities – lower. As price goes down, rates move up.

To make matters worse several holders of MBS sold their bonds as a hedge against raising mortgage rates.

The only economic data should have helped bonds some as the Trade Balance slipped to $58.5B. That was lower than last month’s $63.9B, and below the expected $63.0B to $64.0B.

Bonds could have closed worse. At the opening rates on the 10-year Treasury were +.077% over Thursday already high rates, moving the opening yield to 5.176%. About one hour into trading the yield move to the days high of 5.181%, or +.082%.

Later in the day traders begin to believe that the selling may have been excessive and did some bargain shopping. The 10-year Treasury closed up a scant +.019% to yield 5.118%.

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

The bond market is seeing some very heavy selling this morning. When bonds sell, that is bad for rates. The yield on the benchmark 10-year Treasury is above the 5.000% level. That is the highest it has been since August of 2006. In mid-morning trading the 10-year Treasury is -21/32 with the price at 95&22/32. This has moved the rate up to 5.078% which is .108% over yesterday’s close.

There is little economic data pushing rates in this direction. Analysts are crediting foreign markets for impacting rates (nuking rates would be a better description).

There was heavy selling of German bonds, as well as other overseas government bonds overnight. This selling was based on the idea that interest rates in many nations would stay at their current level, or head higher.

The ECB European Central Bank surprised foreign markets yesterday by increasing its equivalent of our Fed Funds rate by .25% to 4.000%. To make matters worse, ECB chief Jean-Claude Trichet made remarks viewed as signaling further rate hikes are ahead.
New Zealand added to the impression that rates around the world are on an inevitable upward trajectory Thursday, by also making an unexpected rate hike. "The surprise rate hike in New Zealand kept tighter monetary policy firmly in the spotlight," said research firm Action Economics.

Leslie Wines of MarketWatch said that, “investors will be watching to see if the benchmark yield, which is used to set mortgages and corporate bond rates, creeps up to the 5.25% level in coming sessions.”

There have only been two economic items this morning, and both came in near the expected, or close to expectations.

The first out was the weekly Initial Jobless Claims. This measure of first time unemployment filers was predicted to be 310k to 315k. The Labor Department counted up 309k layoffs last week. That is only a little below expectations, and last weeks 310k. This is an inverse indicator; a lower than predicted is bad for rates, and vice versa. This could account for only a very small portion of today’s rate move as it is such a small if not insignificant amount below predictions.

Wholesale inventories were published at 09:00cdt {14:00gmt} and is also an inverse indicator. It came in as expected however, so should not influence rates. Analysts were anticipating a +0.3% to +0.4% reading, and it was +0.3%.

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

D-Day Day.

On this date in 1944 the combined armed forces of the allied nations launched Operation Overlord, the invasion of Normandy. Commonly this has become known as D-Day, and spelled the “beginning of the end” of the Nazi Party (quoting Winston Churchill). As most know, it was successful.

We should all remember and honor and thank them for what they did on that day. Especially to those that did not come back.

To learn more, read D-Day by Stephen Ambrose. Or see the movies The Longest Day staring John Wayne, Ike, or Saving Private Ryan, staring Tom Hanks. (To be clear, Saving Private Ryan was fictional, but it was based on real events. The portrait of what they did and what they experienced was real.)

YESTERDAY, 05 June 2007

There was an event that impacted rates yesterday just prior to the ISM-Services Index. FED Chair Ben Bernanke gave a speech in Cape Town, South Africa. During that speed he indicated that the economy would continue to grow at a moderate pace through the remainder of 2007, and that inflation was still a concern. He also mentioned that Housing Slump was not having as great an influence on the overall economy.

While Bernanke’s comment, “On average, over [the] coming quarters, we expect the economy to advance at a moderate pace, close to or slightly below the economy’s trend rate of expansion…”
This sounds bad for the economy and therefore good for rates, it was not. His assessment of the economy is for growth. It was a disappointment for bond traders and bond investors, who were looking for some sign of actual slowing, not moderate growth. Once again, their hopes of a rate cut of the Fed Funds rate anytime soon were dashed.

The fact that he also mentioned that core-inflation was still a concern only added insult to injury. The Fed-chair poured salt into the wound when he said that the housing sector – the major wound on the economy – was not impacting the rest of the economy.

TODAY, 06 June, 2007.

The bond market is trading around yesterday’s close with most of today’s data either being on cue for predictions, or being unimportant. The 10-year Treasury  is at -.008% with the rate at 4.968%. At one point it was 4.995% which was +.019%, but that spike was very temporary.

The biggest news of the day was the revised-Productivity report which was +1.0%, within the expected +1.0% to +1.4%. It was lower than the +1.7% last reported. Attached to this item was the Unit Labor Cost, which was higher than the forecast range of +1.5%, at +1.8%. This reading MAY have been what caused the momentary spike. By-and-large, this was clearly ignored.

The weekly MBA Purchase Application did not get attention from the bond market, but it is still important to our readers. It was fairly flat at 433.6 in week-to-week analysis; the 4-week moving average was 432.75. Last week’s numbers were 427.0 and 433.9 respectively.

The Challenger Job Cut Survey was only slightly higher than last month’s 70,672 % with a very small increase at 71,115. That may not be good for next month’s Unemployment Rate, but may be good for rates next month when the Employment Situation Report is out. [We need to caution, that the Challenger Survey’s record at predicting unemployment is moderate at best.]

SHORT-TERM OUTLOOK [06 June 2007]

On 05 June, there was some potential good news for next week’s retail sales report on 13 June. Both UBS Store Sales and Redbook Survey have been trending downward in the last few weeks. This morning’s UBS Store Sales were -0.5% in week-to-week measurement, and +2.3% in year-to-year analysis. Redbook was up only 1.8%.

Neither number had any estimates, and both are largely ignored by the bond market. Still the can give an indication to next weeks sales numbers. When the estimates come out, they should be lower.

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

One major bright spot for the US economy seems to be the forward look of US business. That is not necessarily good for rates though.
There was only one major economic report for Tuesday and that was the ISM-Services. It was predicted to be 55.0 to 56.0. The Institute of Supply Managers published the service sector index at 09:00cdt {14:00gmt} at 57.4.

The rate the 10-year treasury spiked immediately after that number to its mid morning trading level of 4.970% which is +.041% higher than yesterday’s close. The 10-year Treasury was a bit higher before the ISM Service release but remained close to the ‘flat’ level +.08 to 4.937%.

There was some good news for next week’s retail sales report on 13 June. Both UBS Store Sales and Redbook Survey have been trending downward in the last few weeks. This morning’s UBS Store Sales were -0.5% in week-to-week measurement, and +2.3% in year-to-year analysis. Redbook was up only 1.8%.

Neither number has any estimates, and both are largely ignored by the bond market. Still the can give an indication to next weeks sales numbers. When the estimates come out, they should be lower.

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

After days of rates going up, finally, bonds are seeing some buying activity in bonds this morning. This buying is bringing rates a bit lower as traders and investors react to a lower than anticipated April Factory Orders. The 10-year Treasury is at -.021% with the yield at 4.935%. (Lament: It was only a few months ago this blog was hoping that the benchmark 10-year would break through, and go below the 4.500% level.)

In addition to today’s scant economic data, traders are paying attention to a decline in Asia and America’s stock market.

Today, bonds are primarily being driven by Factory Orders. Analysts predicted a decline from last month’s report of 3.5%. They were forecasting this month’s number to be +0.6% to +1.5%. A very low reading of +0.3% was published.

The bond market was surprised immediately after the Factory Orders were released. The May report for March was revised from 3.5% to 4.1%. That spooked bonds as they moved up to the day’s high (so far) of 4.954%, which was only -.002% below Friday’s close of 4.956%. Traders then read the current number and reversed itself to the current lower rate.

SHORT-TERM OUTLOOK [01 June 2007]

Next week will be much quieter than this last week was. Monday will hold Factory Orders. Tuesday will see ISM Services. Wednesday will have the quarterly Productivity-Revised. The only major item on Thursday is the Wholesale Inventories. Finally, Friday will have the Trade Balance number.

MID-TERM OUTLOOK [03 June 2007]

There may be a few problems for rates for this quarter.

1.) Investor sentiment leans towards higher rates.

A few months back this blogger wrote that the bond market seemed to be looking for any excuse to buy bonds and thus drive rates lower. It appears that that trend has reversed itself. It seems now that the bond market is looking for any reason to sell, and correspondingly raise rates.

31 May 2007 one such example. There were six items published that day. Even though most of the economic items came in as expected, three did not. Of the three, two were lower than expected and should have moved rates lower. Instead rates continued their upward trend. Clearly investor sentiment has turned bearish on buying bonds.

2) 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. IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

On 08 May 2007 the bond market responded to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage. Given the already oversupply of houses, verses the very number of buyers we have a buyers market now. Reducing the number of buyers hits the real estate market with a double whammy.

Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

The results in May were mixed. New Home Sales were for April were up, while Existing Home Sales were down. At the same time, the Mortgage Bankers Association Application Index has been moving upward, indicating more people are looking.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

3) IF investors continue to be concerned with the FED’s ability to fight inflation. The confusion of the FOMC meeting on 21 March, and the subsequent release of the Minutes on 11 April, caused the bond market to issue a collective HUH?!?! Economists and FED watchers echoed the HUH!?!, and added a wha...?.

There has been one more Fed meeting on 09 May, and it caused rates to move up a bit. The FED action that has impacted rates more dramatically has been comments by FED officials since the last FOMC meeting. FED officials, most often Jeffrey Lacker have spooked the Bond market and pushed rates up in the last few weeks.

4) In February we wrote:

We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. Corn is a staple of many food products that we eat. Increases in corn prices will not just impact corn flakes, but pop/soda, beef, and pig, chicken, candy bars, just about anything we eat.

None other than the Western Hemispheres worse dictators agrees with us. (For once He understands economics.)

An open letter signed by Cuban leader Fidel Castro, titled "More Than 3 Billion People in the World Condemned to Premature Death from Hunger and Thirst," circulated in the media Thursday, 05 April 2007. In his first major statement in months, Castro rejects the use of crops for biofuel production. …he is concerned that President Bush and the US Auto Makers enthusiasm for flexfuel vehicles will have disastrous environmental and food-price consequences for developing countries.

Castro and his ally, Venezuelan President Hugo Chavez, probably are concerned that the Brazilian-U.S. ethanol initiative, launched during Bush's recent Latin American tour, threatens Venezuela's influence in Central American and Caribbean countries through its subsidized oil Petrocaribe initiative.

Even the best estimates of corn based fuel say that it will never replace the need for fossil fuels. At best it can only reduce the demand some. It would be much better for us to reduce our demand on foreign oil and decrease the price at the pump by; 1.) Drilling where we know that there is oil, 2.) Build refineries, 3.) Eat food as food.

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

The bond market is continuing its sell-off this morning. Investors and traders are reacting again to information that is bad for rates, ignoring items that would have caused rates to move lower. The 10-year Treasury is +.057% with the rate at 4.947%.

This was one of the heaviest economic days in the year. The Employment Report and Income and Spending both occurred on the same day.

Probably the biggest item moving rates was a part of the Employment Report. The other biggest item was within the Income and Spending report.

Let’s look first at the Employment Situation Report. As we have said before, this report contains four sections. Two are important, two are not. Two parts of the Employment Situation Report were above expectations; one was very important.

The Payrolls number is one of the most important in any given month as was at 157k. The market was looking for 130k to 140k. (The ADP Job Report is not proving to be very predictive.)

The other higher than forecast number was the Average Workweek; which is not seen as very significant. It was forecast to be 33.8 across the board. It was 33.9.

The other two parts were in expectations. Unemployment Rate was anticipated at 4.5% across the board, and the Labor Department reported it at 4.5%.

Hourly Earnings – not very important – was supposed to be +0.3% to +0.4% and was +0.3%.

The other item moving rates is a very important detail within the Personal Income and Spending Report. The core-PCE – which is the FED’s favorite measure of inflation – was predicted to be +0.2%. That +0.2% is at the highest end of the target the FED wants to attain. The core-PCE was reported +0.5%, which is definitely spooking the market.

Personal Spending was +0.4% within the +0.4% to +0.6% range of expectations.

Personal Income, left by itself would have moved rates lower today, it was below the forecast of +0.3% to +0.6% by actually being -0.1%. (The Main Stream Media will continue in its 2.2% template and highlight this number, while ignoring job growth.)

ISM was as foretold, at 55.0. The 54.0 to 55.0.

Michigan Consumer Sentiment was supposed to come in at 88.0 to 88.7. It was right in those targets and was reported by the U of Mich. at 88.3.

The final number we will look at today is the Pending Home Sales number. It will be a disappointment for many readers of this blog. It was -3.2%, below the expected 0.0%. But, at least it was higher than last month’s -4.9%.

SHORT-TERM OUTLOOK [01 June 2007]

Next week will be much quieter than this last week was. Monday will hold Factory Orders. Tuesday will see ISM Services. Wednesday will have the quarterly Productivity-Revised. The only major item on Thursday is the Wholesale Inventories. Finally, Friday will have the Trade Balance number.

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