Bond Prices Rally Ahead of Employment Report
Fundamentals
Much of the gloomy talk about the American economy since the start of 2016 has apparently started to subside the past several trading sessions, as some ?upbeat? data has started to emerge. On Tuesday, the institute for Supply Management?s manufacturing index rose to 49.5, vs. 48.2 in January. This was the highest this index has been since September of last year. While the index is still reading below 50, which is an indication of contraction in the manufacturing sector, the trend is moving in the right direction for growth and could be signaling that dour economic expectations were overstated. Traders received some encouraging news on the labor front on Wednesday, as the ADP employment report showed that private payrolls grew by a larger than expected 214,000 jobs in February, which added further evidence to the resiliency of the U.S. economy.? Even the Fed Beige Book released on Wednesday afternoon was moderately upbeat, with a majority of the 12 reporting districts showing expansion in both jobs and consumer spending. The interest rate sector has seen increased activity from the improving economic data, as the 10-year note yield is up over 30 basis points from its low of 1.567% back on February 11, and Fed fund futures are now pricing in a 47% chance of a Fed rate hike by the September Federal Open Market Committee Meeting, vs. a 27% chance just last week. Prior to the monthly payrolls report, we saw initial jobless claims rising last week by a larger than expected 6,000 to 278,000. Continuing claims rose by a very modest 3,000 to 2.257 million. With last month?s payrolls a major miss by analysts, many traders will be keenly focused on any ?revisions? to last month?s figures to obtain a clearer picture of the strength of U.S. employment.
Technical Notes? -? View Today’s Chart
Looking at the daily continuation chart for Ultra Bond futures, we note what appears to be a triple-top formation on the weekly chart, with prices now starting to slip below the 20-day moving average for the first time since early January. The 14-day RSI has retreated from overbought levels in mid-February to a more neutral level of 57.49. Prices appear to be forming a consolidation pattern, and this morning?s payrolls report could be the catalyst for the direction of the next interim price move.? Major resistance is found at the February 11 high of 177-24, with support seen at the February 17 low of 168-25.
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