Market Analysis

Bonds are flat with a slight negative bias this morning and stocks are down as concerns about high oil prices continues to weigh on investors.  Friday despite a better than expected February Non-Farm Payroll Report and a January Factory Orders report that exceeded expecations, stocks declined and bonds improved.  Headlines today reported that Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, who is not a voting member of the Federal Reserve Open Market Committee (FOMC), said that should oil prices move from the current $105 to $106 per barrel level to $150, the Fed may need to embark on a new round of bond purchases which would be known as Quantitiative Easing 3 (QE3).  At this juncture, few analysts would place a high probability on a QE3 program given how politically unpopular the QE2 program was. QE2 was the program designed to lower interest rates to further stimulate the economy. Instead interest rates jumped 1/2%.  However, interest rates are remaining relatively stable now in the face of better than expected economic news. 

This week's economic calendar is very light.  Events in the Middle East and the movement in oil prices will be primary drivers of the markets.  There will be Treasury auctions on Tuesday ($32 billion of 3 year notes), Wednesday ($21 billion of 10 year notes) and on Thursday ($13 billion of 30 year bonds).  The key economic data points for the week will be Initial and Continuing Jobless Claims on Thursday and February Retail Sales on Friday.  For consensus estimates of these reports, please see the economic calendar section of our website.