Mid-Curve Treasury Yields Fall On Moderate Employment Gains
Today’s Spotlight Market
In addition to data on employment, traders got a glimpse of consumer spending as well as inflationary pressures in the economy. Personal spending rose by a seasonally adjusted 0.4% in June vs. a 0.3% increase in May. Personal Income also rose by 0.4% in June, which matched economists? expectations. However, the personal consumption expenditures index or PCE Index rose by 1.6% in June from year ago levels vs. a revised 1.7% rise in May. The PCE Index is followed closely by Fed officials and current levels remain below the Fed?s target of 2%. With U.S. employment rising at a very moderate pace, there was not much in Friday?s data to alter the Fed?s stance that monetary policy will remain accommodative for a considerable time period. ?
Fundamentals
July?s employment data failed to live up to the lofty expectations of traders as Non-farm payrolls rose by 209,000 vs. the average pre-report estimate of 230,000. The unemployment rate also unexpectedly rose by 0.1% to 6.2% as the labor participation rate remains near its lowest levels in nearly 3 decades. Inflationary pressures from rising wages remains subdued, with average hourly earnings by a very modest $0.01 to $24.45 and the average workweek remaining unchanged at 34.5 hours.
The employment picture appears to confirm the Fed?s view that although the labor market is showing signs of improvement, there is still a great amount of slack in employment, especially with a high number of part-time jobs being created. It is unlikely that the Fed will be in any hurry to tighten monetary policy while the so called ?U-6? unemployment rate, which includes part-time employees who cannot find full time work and marginally employed workers remains at an elevated 12.2% and employee wage growth remains subdued.
Treasuries were the biggest gainers following the release of the employment data, in particular the 5 and 10-year Notes, which caused the yield curve to steepen. Equity indices initially rallied following the report although gains were short-lived as traders took advantage of the rally to continue to lighten-up on long positions in what may be the start of a correction in the bull market for stocks.?? ?
Technical Notes? -? View Today’s Chart?? Looking at the daily continuation chart for 10-year Note futures, we notice prices becoming range bound after making a series of lower highs and higher lows since September of 2013. The 20 and 200-day moving averages have converged as both bulls and bears have stalemated. The 14-day RSI has recently fallen below 50 with a current reading of 46.50. Near-term resistance is seen at 125-23.5, with near-term support found at 123-25.
————————————————————————————————
Disclaimers
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control. Derivatives involve substantial risk and are not appropriate for all investors. Please read the?“Disclosure Statement for Futures and Options”?prior to investing in futures or options. For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and?other risks?apply.