01 May Lock ahead of tomorrow’s employment report
Initial Jobless Claims for the week ending 4/26/14 were released this morning with an alarmingly high 344,000 new claims for unemployment benefits reported. With the market anticipating 315,000 new claims, the report came as a shock to most economists.
Personal Income and Spending were also released this morning. Income was reported to be up .5%, which beat expectations of .4%, and was also higher than last month’s reported .4%. Consumer Spending was also higher than the anticipated .6%, with an actual report of .9%. This is a .4% increase over last month’s .5%, and a healthy sign for our economic recovery. As consumers spend more purchasing goods and services, our economy generally expands.
Core Personal Consumption Expenditure (CPE) for March was reported at .2%, which matched market expectations. Although higher than last month’s .1% reading, it is still a tame number, causing no reason for panic. Since this is the Fed’s favorite measure of inflation, this must have caused some Fed members concern. If this is as high as inflation is after hundreds of billions of dollars invested in our economy, what will happen when QE3 is finished? There is possibility that inflation will actually fall from these already low numbers.
Then later this morning, The ISM Manufacturing Index was reported at 54.9. This was a bit higher than expectations of 54.3, and higher than last month’s 53.7. Within this strong report, one of the noted strengths was improved growth in employment.
Yesterday’s Fed announcement went without surprises, with the another anticipated $10 billion tapper rolled out. Since the “Tapper” is already priced into the market, there was no negative reaction in the bond market.
With tomorrow’s big employment report release, we are going to suggest a locking bias ahead of the report. Although it is impossible to know if the report will be strong or weak, there are many indicators suggesting it will be a strong report. Therefore, we will sit on the sidelines with a locking bias while we wait and see how things play out. From a technical standpoint, the bond charts appear strong. This is good for interest rates. However, all bets are off when it comes to the BLS Employment Report. A strong report will at least temporarily influence higher interest rates and lower bond prices. However, a longer term outlook still has room for improved pricing ahead.