Treasury Prices Remain Volatile Ahead Of Employment Report
Today’s Spotlight Market
Economists and traders are expecting a modest improvement in job creation last month, with the average estimate calling for a gain of about 229,000 jobs in July. This would be a slight increase from the 223,000 jobs created in June. Private sector jobs were expected to have increased by 220,000, with the unemployment rate expected to remain unchanged at 5.3%. Analysts will also look closely at average hourly earnings, which are expected to have increase by 0.2%, as well as the average workweek, which is expected to remain steady at 34.5 hours. These two data figures will show if there are any signs of wage inflation, which is likely a key figure in the Fed?s analysis for inflationary pressures on the economy.
Fundamentals
If the Federal Reserve is really ?data dependent? in regards to the timing of its first interest rate increase since 2004, then recent economic reports appear to only muddy the waters, as there appears to be no clear trend as to the real strength of the U.S. economy. This week alone we saw ?disappointing? data from the ISM Manufacturing Index, only to be offset by a stronger than expected reading from the Non-Manufacturing Sector. The ADP private employment data showed only 185,000 jobs were created in July, vs. an expected gain of 215,000, yet jobless claims continue to hold near multi-decade lows. Earlier this week, the President of the Federal Reserve Bank of Atlanta Dennis Lockhart commented that he believed the economy was ready to handle a rate increase in September which sparked a rally in Treasury yields, particularly in the short end of the yield curve which is more sensitive to Fed actions on rates. However on Wednesday, Fed governor Jerome Powell said he was still undecided whether the Fed should begin to raise interest rates at the September FOMC meeting, citing inflation that is running below the Fed?s ?ideal? of 2%. Traders of Fed Funds Futures are currently pricing-in about a 66% chance of an interest rate hike by the December 16th meeting, so whether it is September or December may ultimately be determined by how this morning?s and next month?s Non-Farm Payrolls reports stack up to the Fed?s expectations on the strength of the U.S. labor market.? ?
Technical Notes? -? View Today’s Chart
Looking at the daily continuation chart for Treasury Bond futures, we notice a slight pullback in prices the past few sessions following an up move that took the lead month futures from 148-17 to 157-30 in 3 weeks? time. Prices are now above both the 20- and 200-day moving averages, however momentum, as measured by the 14-day RSI, has started to move lower, with a current reading of 57.31, vs. a reading of over 68 earlier in the week. The July 30th low of 153-13 looks to be support for the September futures, with resistance seen at the August 3rd high of 157-30.
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