Market Update April 29
Tame inflation data is supporting Bonds despite a rise in Stock futures in a week that sees a packed economic calendar along with monetary policy from the Federal Reserve.
The Bureau of Economic Analysis reported that Personal Incomes rose by 0.2% in March, just below the 0.3% expected while Personal Spending gained 0.2%, inline with estimates. The savings rate remained at 2.7%.
The Fed’s favorite gauge of inflation, the Core PCE, rose by 0.1% matching the estimates, but the year-over-year PCE fell to an anemic 1.1% from 1.3%. This backs up the Fed’s assertion that inflation is tame and will remain so for some time to come and bolsters its stance that easy monetary policy will be with us through at least this year. The Fed begins its 2-day FOMC meeting on Tuesday with a statement to be delivered at 2:15pm ET on Wednesday.
Pending Home Sales will be released at 10:00am this morning. The rest of the week’s calendar is packed with reports on manufacturing, consumer confidence, initial weekly claims and topped off with Friday’s Non-farm payrolls report where it is expected that employers added 150K new jobs in April. This comes after the weak March reading of only 88K new jobs created.
There are no Treasury Note or Bond auctions this week.
Stocks continue to rally led by the Fed’s stimulus programs and positive corporate earnings reports. Of the 270 companies in the S&P 500 that have reported earnings so far, 74% have beaten profit expectations.
Technically, the 3% coupon is pushing up against resistance (R2) at $104.56, which is just below the $104.75 intraday high hit back on January 3. We recommend to Cautiously Float in the short term, but be careful at current levels. As you can see from the chart, prices have retreated from these levels several times and the Stochastic Chart is clearly showing that Mortgage Bonds are overbought.
As the week progresses, we will be switching to a locking stance ahead of the potentially volatile Fed statement and Friday’s Jobs data.