Yield Curve Flattens Following Disappointing GDP Data
Today’s Spotlight Market
In addition to the Gross Domestic Product data, traders also had to digest the weekly figures from the Labor Department on initial jobless claims. For the week ending July 25th, jobless claims rose by 12,000 to a seasonally adjusted 267,000. The rise was expected by most analysts following last week?s 255,000 claims figure, which was the lowest level since late 1973.? ?
Fundamentals
The U.S. economy continues to show improvement, but at a much more moderate pace than many economists were expecting according to government data released on Thursday. The Commerce Department reported that U.S. gross domestic product (GDP) grew at a 2.3% seasonally adjusted annual rate in the second quarter. While this was a vast improvement over the revised 0.6% rate in Q1, it fell shy of expectations for a 2.7% rate. The overall growth rate is still trailing last year by 0.4%, with slower spending by businesses the main catalyst in the subdued economic growth numbers.
There were some bright spots in yesterday?s data, with consumer spending up 2.9% in the second quarter and U.S. exports have risen at a 5.3% rate, vs. a contraction of 6% in the first quarter. The market reaction was mixed, with U.S. Stock Index futures posting a moderate sell-off after the GDP data was released.? The U.S. Treasury yield curve continues to flatten, with the 2-yr/10-yr curve falling to 153 basis points, down 13 basis points for the month and 41 basis points lower than a year ago.
Many traders still believe that the Federal Reserve will begin to raise interest rates at some point in 2015, especially following the end of the 2-day Federal Open Market Committee meeting on Wednesday, when the Fed made note of continued improvements in the U.S. labor market. However, the pace of additional rate hikes still remains murky, especially given continued subdued inflation levels and tepid economic growth. So the Fed may be content with a ?symbolic? 25 basis point increase in 2015 and remain data-dependent in 2016 on any additional rate hikes.? ?
Technical Notes? – View Today’s Chart
Looking at the daily continuation chart for Ultra Bond (U.S. Treasury bonds with remaining term to maturity of not less than 25 years from the first day of the futures contract delivery month) Futures, we notice what could be a ?rounded bottom formation? developing which would need to see a close above the May 29th high of 161-28 to confirm this bullish chart formation. Prices are currently above the 20-day moving average (MA) but are still holding below the 200-day MA, which is providing a mixed message regarding the short and long-term trends. The 14-day RSI is turning stronger, with a current reading of 60.66. Support is found at the June 26th low of 150-08, with resistance seen at 161-28.
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