Market Analysis

Bonds are up this morning and stocks opened slightly to the negative. Bonds prices deteriorated Friday afternoon as the stock market’s upbeat day on Friday continued through close. Bonds are recouping some of the losses from Friday with momentum driven by investor hopes that the Fed will begin a new round of Treasury note purchases. Last week the Fed indicated they were prepared to take action to address the loss of momentum in the recovery and the weak price pressure environment (before it turns into deflation). In a CNBC poll of 74 leading market participants including economists and fund managers, almost 70% said they thought the Fed would initiate additional quantitative easing (printing money to purchase assets expected to primarily be Treasury notes) Of those 70%, 8 in 10 thought the Fed would begin expanding their balance sheet before the year ends. The Federal Reserve currently holds approx $2.3 trillion of Treasury notes, mortgage-backed securities, Fannie/Freddie debt, loans to banks etc. This is up from approx $869 billion in August 2007. The analysts in the CNBC poll expect the Fed’s balance sheet to increase by another $500 billion. For a detail listing of the assets held by the Fed you can see a breakdown at http://www.federalreserve.gov/releases/h41/current/ . Below is a recap of this week’s economic calendar:

Monday, September 27, 2010

• US Treasury sells $36 billion of 2-year notes – demand expected to be strong.

Tuesday, September 28, 2010

• July Case-Shiller 20 City Index (home prices) – 3 month moving average expected up 3.3% vs last month’s 3 month moving average up 4.23%.
• September Conference Board Consumer Confidence Index – expected 53.0 reading vs 53.5 in August
• US Treasury sells $35 billion of 5-year notes – demand expected to be strong

Wednesday, September 29, 2010

• US Treasury sells $29 billion of 7-year notes - demand expected to be strong

Thursday, September 30, 2010

• Initial Jobless Claims week ended 9/25/10 – expected down to 457,000 from 465,000 the prior week
• Continuing Jobless Claims week ended 9/18/10 – expected down to 4.450 million from 4.489 million the prior week
• 3^rd Estimate 2^nd Qtr GDP estimate – expected up 1.6% (no change from 2^nd estimate)
• September Chicago Purchasing Manager’s Index (PMI) – expected 56.0 reading vs 56.7 reading in August

Friday, October 1, 2010

• August Personal Income, Spending and PCE (Personal Consumption Expenditure) Index – Incomes expected up .3% vs up .2% in July. Spending expected up .3% vs up .4% in July. PCE Index expected up .1% vs August up .1%.
• September Institute of Supply Mgmt (ISM) Manufacturing Index – expected 54.8 reading vs 56.3 reading in August
• August Construction Spending – expected down .5% vs down 1% in July
• September Domestic Vehicle Sales – domestic auto sales expected at 3.8 million vs 3.7 million in August. Domestic truck sales (including suv’s and mini vans) expected at 4.9 million vs 4.96 million in August