Rates closed up, in part as an opposite reaction to the stock market, and in part, preparation for tomorrow’s Speech by FED Governor Frederic S. Mishkin. Profit taking also impacted rates. The 10-year Treasury closed today at 4.670% which is +.016% higher than Wednesday.

Governor Mishkin’s speech is titled, “U.S. Economic Outlook”. It will be given at The Levy Economics Institute, Bard College, Annandale-on-Hudson, New York; at 12:30 p.m. EDT on Friday.

Speeches by FED Governors are hard, if not impossible to predict. Still, the market is of course concerned that he may l reignite inflationary fears.

Yes, this week’s CPI and core-CPI numbers were at or lower than expected. While CPI is the most popular inflation measure, it is only one of many inflation indexes. The FED prefers to use the Personal Consumption Expenditure numbers. Those have consistently ranged around 2.1% to 2.3%. They have been above the FED’s targeted 2.0%. No, it does not sound like much of a difference, it is to FED governors.

There is also the theory by some the upward move in rates corresponded to the upward movement in the stock market. The Dow Jones Industrial Average posted only modest gains +4.79. Broader based, and therefore more accurate stock indexes like the S&P 500 (-1.77) were actually lower. The important thing as far as bonds are concerned is the volume, which was high for the day. Funds moved out of bonds and into stocks.

The economic data should have moved rates lower, and did at the markets opening.

Bonds initially responded to a higher than anticipated Initial Jobless claims. Economists were expecting 320k to 325k workers to file for unemployment insurance last week. 327k did, indicating a weaker jobless market.

LEI was at the low end of expectations at +0.1%.

The Philadelphia Fed Survey was far lower than predicted. The market was looking for a 1.0 to 3.0 reading.

None of the lower than expected economic data was strong enough to keep rates lower.

TOMORROW, 20 APRIL 2007

There are no significant items. The only market moving event will be the afore mentioned speech by FED Governor Frederic S. Mishkin.

[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

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

The bond market opened with prices a lower, and rates correspondingly higher. Shortly after the opening rates moved up to 4.743%. They immediately reversed course with rates heading lower, and have continued that trend.

When the market first opened it responded to core-CPI (Consumer Price Index). Expectations were for a reading of +0.2% across the board. The Labor department reported that consumer prices less food and energy were +0.1%; obviously lower than expected.

The aggregate CPI was at the high end of the expected range of +0.4% to +0.7%. Total CPI was announced at +0.6%.

That moved rates on the 10-year Treasury -.021% from Monday’s close of 4.735%, making the rate 4.714%.

The downward trend could have been even lower, but the market may have been tempered by Housing Starts of 1.518m, which was at the high end of the forecast 1.490m to 1.520m. Building Permits, while less important, were higher than forecast at 1.544m. The predictions were for 1.500m to 1.520m.

Shortly into the morning’s trading the Industrial Production and Capacity Utilization were made public. Both were lower than predicted. Industrial Production was predicted at -0.1% to +0.2%, but was reported at -0.2%. The market was looking for Capacity Utilization to be 81.8% to 82.0%, but was 81.4%.

After the Industrial report rates moved even lower. The rate on the 10-year Treasury is 4.692% which is -.043% lower than yesterday’s close.

TOMORROW, 18 APRIL.

There is no data tomorrow. Rates will be responding to any non-economic events. One such event may be some profit taking which means we may see rates going back up some.

[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

Bond rates are lower in mid-morning as traders and investors correct their view of foreign demand. On last Thursday demand for the TIPs auction was disappointing; especially from foreign buyers. That led the bond market to believe that offshore demand has dried up.

A half hour into trading at 08:00cdt {13:00gmt} Net Foreign Purchases number reversed that belief. The total report was not a surprise for lower rates. There was only one economic agency making a prediction for this event, and they were looking for an aggregate of $80.0B. The NET foreign Purchases were $58.1B. The market was encouraged when it read the details and saw that inflows from overseas were $94.5B.

That 10-year Treasury moved downward after the release to 4.745% or -.016% lower than Friday’s close.

Other items out were basically as expected, or ignored by bonds for whatever reason.

Retail Sales and core-Retail Sales were at or just above expectations. The more important of the two, core-Retail Sales, was expected to be +0.7% to +0.9%, and was reported at +0.8%. The market was looking for total Retail Sales to be +0.4% tom+0.6%. Retail Sales were reported above that number at +0.7%.

NY Empire State Index should have moved rates much lower as it was far below the expected 8.8 to 10.0. The NY FED published its survey at the markets open reporting the index at 3.8. There is no explanation why it did not move rates.

Business Inventories were out at 09:00cdt {14:00gmt} and possessed no surprises. Economists anticipated it at +0.2% to +0.3%, and it came in at +0.3%

TOMORROW 17 APRIL 2007

This will be a very heavy day and could be VERY volatile. There are three important reports, each consisting of two elements. All 6 are important and volatile. Most have fairly tight predictions. We hope to give more detail this afternoon.

CPI and Core-CPI are out at the morning’s opening. Aggregate CPI is predicted to be +0.6% to +0.7%, which is higher than the +0.4%. The more important Core-CPI is predicted to be +0.2%, the same as last month.

Housing Starts and Building Permits are also published at the opening. Housing starts are the more important and are forecast to be 1.490m to 1.520m. Building Permits are forecast at 1.500m to 1.520m.

At 08:15cdt {13:15gmt} the Industrial Production and Capacity Utilization reports are out. Industrial Production is looking for a -0.1% to +0.2%. Capacity Utilization is anticipated to be 81.8% to 82.0%.

[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.]

Last Friday we erred in reporting that CPI would be published on Wednesday. We are not certain why we got this wrong. CPI is out on Tuesday!!!

SHORT-TERM OUTLOOK [13 April 2007]

Monday and Tuesday will be the biggest days next week and each has its own share of heavy data.

Monday holds the Retail Sales Report and the NY Empire State Index. Both have a habit of moving rates. On 03 April we posted our concerns for Monday’s numbers. Both UBS and Redbook indicators have been trending upward. If the predictions do not match that trend, Monday could be a bad day.

The Consumer Price Report is published on Tuesday. Its impact on rates is well known, and obvious.

MID-TERM OUTLOOK [13 April 2007]

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

1.) IF homeowners start to see a rebound in housing – it appears that there is some small turn around – their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

2.) IF investors continue to be concerned with the FED’s ability to fight inflation. The confusion of the last 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...?.

3.) 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. That will impact not just corn flakes, but pop/soda, beef, and pig, 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.

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

YESTERDAY 12 April 2007

In mid-trading day a Treasury TIPS Auction reversed the gains that the bond market had made earlier in the day, causing the 10-year Treasury to close almost flat. Compared to Wednesday’s close the 10-year Treasury was -.002% with the yield at 4.739%.

TIPS is short for Treasury Inflation Protected Securities. The auction produced a very low 18.7% indirect bid, the carefully watched category that includes central banks. This ignited concerns about dwindling foreign appetite for U.S. government instruments. The bid-to-cover ratio was 1.88, which is below average. The high yield was 2.284% and the median yield was 2.255%

In short, it means that some investors, especially foreign investors, are losing confidence in the FED and the US economy to keep inflation as low as it has been. Weather this is accurate or not makes no difference in the short term. As in all things in life, perception IS reality.

TODAY, Happy Friday the 13^th.

The market opened with a yawn as PPI was mixed. The aggregate PPI was a bit higher than anticipated, and was reported at +1.0%. The more important core-PPI was lower than expected, having been reported flat at 0.0%.

The mixed PPI caused the bond market to open pretty much flat. Near the opening the 10-year Treasury was -.006% with the rate at 4.731%.

Apparently the bond market ignored the Balance of Trade which was expected to be $60.0B to $61.0B. The Balance of Trade was also made public at the markets opening and was reported at $58.4B. That much lower should have impacted rates.

The market was moved by the University of Michigan’s Consumer Sentiment. Most economists were looking for a reading of 87.0 to 88.0. The actual Consumer Sentiment was published at 85.3. Normally, this would have been GREAT for rates. But the bond market went higher. At one point the 10-year Treasury was up to 4.769%.

Investors were uncertain what to make of the latest Consumer Sentiment reading. Action Economics reported that there were other estimates that Consumer Sentiment would be as low as low as 83.5. Clearly an 85.3 number was stronger than some analysts had expected.

The higher Consumer Sentiment report along with investors taking position for the weekend has moved rates somewhat higher. The 10-year Treasury is +.024% with the rate at 4.761%.

There may be one other thing that is influencing rates; the margin between wholesale energy costs and street gasoline costs has widened to a ‘normal’ level of 62.70 nationally and 50.90 in the Twin Cities. A few weeks back the margin was in the mid-40s. As we approach summer driving the margin may even grow larger. The wires do not mention this, neither do any analysts. But, most investors and traders buy gasoline. They may have unexpressed concerns.

The NYMEX Crude is $63.77/Bbl. The Robb Gasoline is at $219.20/Gal.

[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.]

SHORT-TERM OUTLOOK [09 April 2007]

Monday and Wednesday will be the biggest days next week and each has its own share of heavy data.

Monday holds the Retail Sales Report and the NY Empire State Index. Both have a habit of moving rates. On 03 April we posted our concerns for Monday’s numbers. Both UBS and Redbook indicators have been trending upward. If the predictions do not match that trend, Monday could be a bad day.

The Consumer Price Report is published on Wednesday. Its impact on rates is well known, and obvious.

MID-TERM OUTLOOK [09 April 2007]

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

1.) IF homeowners start to see a rebound in housing – it appears that there is some small turn around – their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

2.) IF investors continue to be concerned with the FED’s ability to fight inflation. The confusion of the last 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...?.

3.)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. That will impact not just corn flakes, but pop/soda, beef, and pig, 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.

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

The weekly Initial Jobless claims are the primary mover of rates this morning. It was predicted that 315,000 to 320,000 employees would file for first time unemployment insurance; 342,000 did. Not only is that above predictions, it is higher than last weeks 321k. As an inverse indicator this higher number is bad for the economy. Bad for the economy = good for rates.

Import Prices were also indicated lower inflation. The expectations were +.05% to +0.9%. The Department of Commerce reported that Import prices were +0.3%.

Export Prices seldom influence rates and had no estimates this month. The Department of Commerce reported Export Prices at +0.6%.

TOMORROW, 13 APRIL 2007

The big item for Friday will be the Producer Price Index (PPI) and core-PPI. The PPI looks at inflation at the wholesale level. Core-PPI looks at the same only it excludes the more volatile food and energy costs. Both have had a recent history of being lower than the anticipated number, which was true at least possibly until this month.

PPI is expected to be a bit lower than last month’s report when it was reported at 1.3%. It is predicted to be +0.6% to +0.9%. Core-PPI is the more important of the two items. Estimates are +0.2% from all sources. Last month core-PPI was +0.4%.

PPI is the most important of Friday’s data, but not the only important one. It is also not the only volatile one. The University of Michigan publishes its Consumer Sentiment Report. Bond traders and investors pay very close attention to it. Last month’s final number was 88.4. It is expected to be 87.0 to 88.0

Trade Balance seldom has an effect on rates. The bond market is looking for a $60.0 to $61.0 reading which is higher than last month’s $59.1.

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

Bonds did react some to the publication of the FOMC Minutes, Though not quite as much as they ought to have. The 10-year Treasury closed +.015% with the rate at +4.739%. The benchmark 10-year Treasury was -.010% just before the FED made the FOMC Minutes public. The Minutes did cause a +.025% intraday trading.

The minutes are very hard to get a read of the FED’s direction this time. Some analysts see the Minutes pointing toward both a slowing of the economy and inflation increasing. That is a situation called ‘stagflation’. That is only a few of the analysts. Most are thinking that the minutes indicate some inflation threat still present, but not all that bad. We will be reading commentary further and hoping to be able to give our opinion soon.

We erred this morning in missing an economic item; The Mortgage Bankers Association (MBA) Purchase Application Index. It is seldom noticed by the bond market, but it can give very good indication where the real estate sector is moving. The week-to-week MBA Purchase Index was at 413.0. This is the highest single weekly indicator since 17 January, 2007. As important, it moved the 4-week average up from last week’s 409.73 to 413.06. That could be good news for the majority of our blogs readers who are directly affected by changes in the real estate industry.

At the same time other items in the Real Estate Sector are looking bad. The National Association of Realtors projected that existing home sales will fall 2.2% this year to 6.34 million, and estimated, for the first time ever, a decline in the median national selling price for existing homes, as many borrowers are finding they’ve got debts no honest man can pay. The stock market saw Homebuilders stock perform accordingly, Homebuilders were the day’s worst performers, dropping 1.9%.

TOMORROW, 12 March 2007

Import & Export Prices are circulated at the market’s opening. There are no predictions for Export Prices, and it never seems to impact rates. Import Prices can influence rates on the other hand. Economists are expecting a growth of +0.5% to +0.9%.

The weekly Initial Jobless Claims is also made public at the bond market’s opening. Analysts are predicting a slightly stronger job market, looking at 315k to 320k growth. Last week 321k workers filed for unemployment insurance.

We really have no guess which way that these two will impact rates tomorrow. The FOMC Minutes may still as analysts spend the night doing what we will be doing. We all will be reading the minutes and each other’s comments to try to figure out what the FED is saying.

[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

There is one other item to be announced at 13:00cdt; the Treasury Budget. It is an important number, and it can occasionally impact rates. However, it probably will not affect rates today as it will be overshadowed by the FOMC Minutes. In the unlikely event that the minutes are ignored by the bond market, the Treasury Budget could influence rates to lower. It is expected to be -$89.0B to -$95.0B. All estimates are higher than the last month’s -$85.3B. If it does surprise the market, it could surprises as a lower than expected figure.

At this time the 10-year Treasury is -.012% with the rate at 4.712%.

Energy prices are mixed, with NYMEX Crude up only slightly from yesterday, but lower than where it was just last week when it opened close to $65.94/bbl. Gasoline on the other hand is in short supply (WE NEED TO BUILD REFINARIES!!!). The Robb Gasoline today is $216.43/gal.

We will post on the FOMC Minutes, the T-Budget, and tomorrow’s data late this afternoon once the events take place.

[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

The 10-year Treasury is -.023% at 4.722%

There is next to no significant data this morning, There were two weekly private sector sales surveys and both have been trending upwards lately. The UBS Store Sales was +0.9% in week-to-week comparison, and +4.0% in year-to-year analysis. Redbook Store Survey is +4.9% in its year-to-year look.

TOMORROW, 11 April 2007

By far the biggest mover of the day will be released at 13:00cdt {1:00pm. 18:00gmt}. The FOMC Minutes have a history of dramatically impacting rates. At times it moves rates dramatically both ways in one day. The FOMC Minutes summarize what was said, and voted on during the FED’s last meeting of the FOMC.

We have some concerns of the direction that the Minutes will impact rates. Once again, it could be both. Some concerns are expressed in the Short-Term Outlook below. When the FOMC last met the bond market took and ran with the absence of one thing; a mention of rate tightening. The bond market went wild and rates move .073% in intra-day trading, closing at 4.518%. Within the next few days the bond market has corrected those rates and has been higher since then.

The big question; will the bond market again notice that the tightening bias is missing? Or, will the bond market see more inflation warnings? Will the correction be sufficient and rates trade flat tomorrow? Or will the answer to all three be, yes? Or guess is the latter.

[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.]

SHORT-TERM OUTLOOK [09 April 2007]

Bonds could be quiet for most of this week, as most of the economic events for this week are of low importance, and few surprising events.

Monday contains some Treasury Auctions which only rarely surprise the bond markets.

On Tuesday the bond market opens with the UBS Store Sales, and the Redbook Retail Survey.

Wednesday has a very powerful event; the FOMC Minutes. The FED is not convinced that inflation has been whipped. The commentary from FED official will be of concern for rates. We need to consider that when the FOMC minutes are released on 11 April 2007.

The majority of economists seem to see the FED on hold for the next few months. That could be good given that the bond market has a desire to keep long term rates below the FED-Funds rates.

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

[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.]

SHORT-TERM OUTLOOK [09 April 2007]

Bonds could be quiet for most of this week, as most of the economic events for this week are of low importance, and few surprising events.

Monday contains some Treasury Auctions which only rarely surprise the bond markets.

On Tuesday the bond market opens with the UBS Store Sales, and the Redbook Retail Survey.

Wednesday has a very powerful event; the FOMC Minutes. The FED is not convinced that inflation is whipped. The commentary from FED official will be of concern for rates. We need to consider that when the FOMC minutes are released on 11 April 2007.

The majority of economists seem to see the FED on hold for the next few months. That could be good given that the bond market has a desire to keep long term rates below the FED-Funds rates.

Friday is also an important day and does contain the report on inflation at the wholesale level; called the Producer Price Index.

MID-TERM OUTLOOK [09 April 2007]

There may be a problem for rates for this quarter. IF homeowners start to see a rebound in housing – it appears that there is some small turn around – their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

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. That will impact not just corn flakes, but pop/soda, beef, and pig, just about anything we eat.

Some in the Main Stream Media are starting to figure this out. A few weeks back CNN said this:

“Corn: The inflation crop

“The U.S. is set to report a jump in acreage planted as farmers feed the ethanol machine. One byproduct: rising food prices.

By Jeff Cox, CNNMoney.com contributing writer

March 28 2007: 7:20 AM EDT “NEW YORK (CNNMoney.com) -- It's no secret that the rush to ethanol and other alternative fuels has made corn the rock star of the Farm Belt.

“That newfound prominence has big implications for the nation's economy, experts say. Soaring corn prices are pushing up the tab for everything from candy to corn flakes, moribund land values have jumped in many Midwestern farming communities and the crop has become the lynchpin for the budding $40 billion ethanol industry.

“With corn farmers now getting $4 a bushel for their crops - double the price just two years ago - corn's become the crop of choice for farmers. And with the government's release Friday of a key report likely to show a jump of 11 percent or more in the amount of acreage farmers plant with corn this year, the 7,000-year-old crop will remain front and center in the eyes of economists and millions of other Americans.

Mark Schultz, an analyst at Northstar Commodity Investment Co. in Minneapolis, believes that excessive rainfall is the only thing that can slow down the corn market. "The demand continues to get stronger for ethanol and that's going to continue on. We don't see anything slowing that down at the present time," Schultz said.

“But he's also watching other effects of corn's growth, and notes that the increase in corn prices has meant less feed for livestock. Cattle weights have dropped 10 to 20 pounds during the past year, he said. Experts disagree on whether the falling cattle weights will lead to higher beef prices.

William Plummer, a commodities trading adviser at Wextrust Capital based in Chicago, said he is bullish long-term on corn prices.

“‘I don't think we can ramp up production of agricultural products fast enough to compensate for the growth of ethanol facilities in the U.S.," he said.

“‘This price level that we're looking at right now is going to be on the low side or certainly the medium-low side of where we're going to be. We're not going to see corn under three bucks unless there's some sort of catastrophe.’ "

Commentary: Let’s eat food and burn oil.

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

The bond market will be closing very early this morning. The way that bond’s are trading this morning that could be good. The bond market was shocked hard by the Employment Situation Report. (See yesterday’s post for an explanation of the Employment Situation Report.)

The two biggest surprises also came from the two most important portions of the Employment Situation Report.

Payrolls grew by 180,000. Economists were only expecting a growth of 135,000 to 168,000. This is obviously a big surprise in one of the months most important items.

The Unemployment Rate is the other very important part of the Employment Situation Report. It surprised the market as well. The bond market was looking for a 4.5% to 4.6% rate. The headline Unemployment Rate was very low at 4.4%. This is an inverse indicator; a lower than expected number is good for the economy, but bad for rates.

Both of these numbers are good enough that even the MSM (main stream media) will have to pay attention to them. It will be very hard for them to 2.2% these numbers.

The MSM may try to find, and then point out the problems in the details of the numbers. They’ll have a chance if the look at the Hourly Earnings; it came in at the low end (+0.3%) of the anticipated +0.3% to +0.4%. Problem for Katie Couric will be how to spin this as a payroll growth of +0.3% inflation adjusted and annualized is +3.6% without even considering compounding interest.

The MSM will not be able to point to the Average Workweek in their search for bad news. It was it 33.9 hours which was above the anticipated 33.8.

As good as this is for the economy, these numbers are going to scare bond traders. An overly strong job market can spark the wage-price spiral. That has pushed the 10-year Treasury up to 4.737. This is an increase of .063% over yesterday’s close.

[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

Rates could hardly be flatter this morning, as the bond market waits for tomorrow’s very important Employment Situation Report.

The only item watched by the financial markets today is the weekly Initial Jobless claims. It was anticipated to be 315k to 318k, but the labor department reported it higher at 321k. As an inverse indicator – a high number is bad for the economy and therefore good for rates – this high number should have brought rates a bit lower. Clearly it did not as investors are more concerned with Friday.

The 10-year Treasury is -.002% at 4.650%.

The only other items out are the Monster job advertisement survey which was higher than last month’s 177 with April at 185. That means there are more employers looking for employees. The Bank of England surprised no one as it left its lending rate unchanged at 5.25%.

Congratulations to the Britts for the arrival of their Sailors and Marines. The crisis past, oil prices will trade ‘normally’ again. The NYMEX crude price is $64.52/bbl. which is +$.14 or +.22%. The Robb Gasoline is at 211.8/ gallon. We are going to start watching these prices more as we approach the summer driving season. Prices are up enough to start impacting inflation.

The margins are very low, especially in the Twin Cities metro. The national margin is 58.80, The Twin Cities is 44.10. Normally in the summer driving season they are closer to 80.00. If something happens to snap gasoline prices the climb could be 40cents a gallon in a week’s time.

TOMORROW 06 APRIL, 2007

We are looking at one of the heaviest days in the monthly schedule of economic events. Worse, or better, the bond market closes very early on Friday. Bloomberg.com is reporting that The Bond Market Assoc. recommended early close 10:30 ET, 09:30cdt {14:30zulu}. Most banks are open, while the stock markets will be closed in honor of Good Friday. That early close gives the bond market only two hours to respond to the Employment Situation Report. There will only be a half hour to look at the less important Wholesale Inventories report. The bond market will be closed when Consumer Credit comes out.

The Employment Situation Report consist of four items; Average Workweek, Hourly earnings, Non-Farm Payrolls and the Unemployment Rate. The First two; Average Workweek and Hourly Earnings are not seen as too important, and seldom surprise rates. The next two items are headline items and VERY important. Payrolls and Unemployment often surprise and impact interest rates.

Average Hourly Workweek is expected to be 33.8, slightly higher than last months 33.7.

Hourly Earnings are predicted to be +0.3% to +0.4%, at or lower than last month’s +0.4%. Unemployment rate is forecast to be 4.5% to 4.6%, which is at or above last month’s 4.5%.

We think that Payrolls have the greatest chance to impact rates. We only wish we knew which way. Analysts have a broad range of expectations, looking for a 135k to 168k report. All are higher than last month’s 97k. This week’s ADP Report give hints that Payrolls will probably be at the low end, if not below the expectations. There is a chance that Payrolls could help us with rates tomorrow.

Wholesale Inventories will probably have little impact on rates. The market is looking for a +0.4% reading across the board. This is lower than last month’s +0.7%.
As we mentioned, Consumer Credit is out long after the bond market closes. If far outside of the anticipated $4.5b to $7.3b, it could influence rates on Monday, but that is HIGHLY unlikely.

[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

Iran blinked. That is the good news of the day. Iran’s President Mahmoud Ahmadinejad – which should be pronounced, My-mood, I’m-in-a-mood-for-a-jihad – said that Iran would free the 15 kidnapped British sailors and Marines. I’m-in-a-mood-for-a-jihad said that it is a "gift" to the British people. I’m waiting for a bank robber to try that when caught and returns the money as a gift to the depositors.

Surprisingly, there has been only a minor, if any, affect on rates. It did help Crude and Gasoline prices to a small degree. Shortly after Iran’s ‘gift’ NYMEX crude was priced at 63.76 down -.86 or -1.36%.

More good news, the price on the 10-year Treasury is rising this morning; which is lowering rates, as bond rates and price always move in opposite directions. The rate is 4.634% which is -.030% lower than yesterday’s closing price.

First thing in the morning, bond rates were being pushed lower by the ADP Employment Survey showing private sector job growth of 106.0 in March. Even adding about 20,000 government jobs does not equal the current expectations of 135k to 168k. The ADP Employment Survey is somewhat new, and its ability to predict payrolls has a mixed record today. It does track the payrolls number very well.

At 09:00cdt {14:00gmt} the ISM-Services Index was lower than expected at 52.4. Economists were looking for a 54.7 to 55.0 reading. That surprise has been the primary mover of rates this morning.

Factory Orders were released at the same time as the ISM-Services. It was lower then expectations, which probably added to the bond buying activity. Factory Orders were predicted to be +1.7% to +2.5%. The Department of Commerce reported Factory Orders at +1.0%.

There were items that the bond market ignored but could give insight to future bond activity as well as being interest to the real estate industry. The MBA Purchase Application Index was flat at 402.9 and the 4-week moving average was 409.73. The Challenger Job Report estimated that 48,997 Layoffs occurred in March.

TOMORROW, 05 APRIL 2007.

Thursday has very little economic events. The weekly Initial Jobless Claims are the only item out. It only occasionally surprises the market. It is forecast to be higher than last weeks 308k with analysts anticipating a report of 315k to 318k.

There are other items out, yet they have little history of moving rates. The only two that might move rates is the Bank of England rate announcement and the US Treasury Strips auction announcement. Monster Job Report and Dow Jones Business Barometer have seldom if ever moved rates.

Any one of these five would have to have a big surprise to impact rates. Traders and investors will more likely be taking position, or waiting for the all important Employment Situation Report on Friday.

[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

Last month FED Chairman Ben S. Bernanke and many other policy makers said that they were more concerned about bringing down inflation than about the economy faltering.

Fed fund futures traders have changed their bet to a 24% chance that the FED will lower the FED Funds rate between now and July. On 02 March they had a 76% probability of a rate cut. Bet’s on rate cuts this year increased after the Fed omitted a previous reference to raising borrowing costs in a March 21 statement.

This morning’s Bloomberg on line by Agnes Lovasz and Oliver Biggadike, reported:
“The Fed has made it clear inflation remains its focus and there are no real signs inflation pressures are moderating,'' said John Wraith, head of interest-rate strategy at Royal Bank of Scotland Group Plc. ``We don't see rates going anywhere at all. Therefore, yields are too low. We wouldn't recommend buying any Treasuries at this point.''

The 10-year Treasury is trading at 4.660% which is +.018% from yesterday’s close.

There is little economic data out this morning.

The one item that many readers of this blog should pay attention to, will not give them much comfort. The National Association of Realtors publishes a monthly number called the Pending Home Sales.
An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined and the first of five consecutive record years for existing-home sales. There is a closer relationship between annual changes in the index and actual market performance than with month-to-month comparisons. As the relatively new index matures and seasonal adjustment factors are refined, the month-to-month comparisons will become more meaningful over time.

Pending homes sales Index was at 109.3, which is higher than last month’s revised report of 108.5%. But it is down 8.5% from last years report at this time of 119.4.

From the National Association of Realtors press Release:
“David Lereah, NAR’s chief economist, said there has been a steady narrowing from year-ago readings since last July. “If it wasn’t for the unusually bad weather in February, we’d be seeing a better performance in pending home sales,” he said. “We also may be seeing some fallout from a decline in subprime lending, but a slight improvement in the more volatile month-to-month index is encouraging – the data suggests an underlying stabilization is taking place in the housing market, but it will take another month or two to clarify.”

The UBS Store Sales index was at +0.3% in week-to-week, and +4.9% in year-to-year comparison. Redbook Sales Survey was +4.7%. Both of these weekly numbers have been trending upward, which may be important on 16 April when the next Retail Sales report is out.

TOMORROW, 04 APRIL.

There are two moderately important figures out in the morning at 09:00cdt {14:00gmt}. Wednesday is the release of both ISM-Services Index, and Factory Orders. Both have some chance of surprising the market and therefore impacting rates.

The more important of the two is the ISM-Services Index. It is a forward looking indicator, while Factory Orders are from February. ISM-Services Index is predicted to be 54.7 to 55.0.

Factory Orders may not be as important as ISM-Services, but it has a slightly higher likelihood of impacting rates. Growth in February is anticipated to be reported at +1.7% to 2.5%.

[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

At 09:00cdt {14:00gmt}, the Institute for Supply Managers (ISM) released its survey of manufacturing purchasing managers beliefs of their future buying activity. It was expected to be 51.0 to 52.0. The ISM was 50.9. This did bring the 10-year Treasury down to 4.630% which was -.018% lower than Friday’s close.

At 10:00cdt {15:00gmt} the 10-year Treasury was within -.002% of Friday’s close with the rate at 4.646%. There was a 4 week Treasury bill announcement which may have had less demand than expected.

Since that time rates have remained close to that level with the 10-year Treasury at 4.644% and -.004% from Friday.

TOMORROW, 03 APRIL.

It could be a very quiet day on Tuesday, assuming that international events do not escalate.

UBS Store Sales, and Redbook are two weekly guesses at what retail sales are doing. There are no predictions for these and they seldom affect rates. We watch them only as they give a clue to the all important Retail Sales numbers.

Pending Home Sales are out at 09:00cdt {14:00gmt}. It is very rarely watched but could be important. The Residential Real estate sector is in a dive, but it appears that the dive may be at a bottom. If nothing else, it is in a state flux.

Auto and Truck Sales will be published at 16:00cdt {21:00gmt}. Since it is out way after the market closes, it will not impact rates tomorrow, it MAY have some on Wednesday’s opening, but only if it is way outside of the predicted 12.7m to 16.5m.

[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