Morning Futures Roundup

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Treasuries See Renewed Bullish Enthusiasm as the End of Summer Approaches
 Fundamentals

"I’m not dead yet!" is not just a quote from a Monty Python movie, but also the cry from those bullish on U.S. Treasury futures, despite the sharp decline in prices since the beginning of the year.  Recently, Ten-year Note futures have rallied to highs not seen since May, as the surging equities rally has stalled, causing investors and traders to move funds into perceived "safer" investments. 

There have been some news stories reporting that the slump in commercial real estate may trigger additional bank failures, which do not help to dampen concerns that the recent economic recovery might be starting to run out of steam.  Yesterday’s report on Q2 unit labor costs showed a decline of 5.9% on an annual rate, which demonstrates that wage inflation has been muted and is considered supportive to the views that the Federal Reserve will not need to worry about rising inflation for some time. 

Although the labor market has shown some signs of stabilizing, there are still concerns that U.S. job creation will continue to lag.  Yesterday’s Automatic Data Processing/Macroeconomic Advisers private-sector jobs survey has the U.S. shedding 298,000 jobs in August, which was above estimates of 215,000 jobs lost.  While the number of jobs lost has begun to decline, there are still no signs that the U.S. will move towards actually creating jobs anytime soon.  Expectations are that the monthly Non-farm payrolls report to be released on Friday will show an increase in the August unemployment rate to 9.5%. 

Trading volume in the Treasury market should be light the rest of the week -- at least until the NFP report is released.  However, with the 3-day holiday weekend in the U.S. due to the Labor Day holiday on Monday, many of the bond trading desks will empty out by late morning on Friday, as traders take advantage of the end of summer holiday.




Technical Notes

Looking at the continuous daily chart for the Ten-year note futures, we notice prices have been stuck in a 4-point range, with 119-00 at the top end of the range and just under 115-00 at the low end.  Prices have been hovering on both sides of the 20-day moving average, which has chopped short-term momentum traders to pieces.  The 200-day moving average looms near the 121-00 level, and longer-term position traders would be hard pressed to be bullish on 10-year Notes until prices close above this long-term indicator. The 14-day RSI remains in neutral territory with a current reading of 54.66. 119-00 is seen as resistance in the December TY futures, with support found at 113-06.

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