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Today’s Spotlight Market?
The October non- farm payrolls came in way above expectations last Friday. 271,000 new jobs were added in October and the unemployment rate dropped to 5.0%. 5% unemployment is considered by many economists to be the natural rate of unemployment. A drop substantially below 5% could be a harbinger of wage push inflation. The Fed has set their inflation goal at 2% and they may proactively raise interest rates to head off inflation.
Fundamentals
The financial news media will often comment on how likely the market is pricing in the potential of a rate hike. Traders can examine this data themselves by looking at the Fed Funds futures. For example, let?s look at the December 2015 Fed Funds futures, as of this writing they last traded at 99.785. To determine how Fed Funds futures are pricing in expected interest rates for December, subtract 99.785 from 100 (which would be an interest rate of zero.)100-99.875 which indicates an expected rate of .215, close to the expected increase from 0 to .25%.? If Fed Funds futures are trading lower, then this indicates the market is expecting rates to be higher for that month.
Technical Notes View Today’s Chart
Technical analysis is not a useful tool to examine Fed Funds futures as interest rates have been at zero since December of 2008. However, the very actively traded Ten Year Treasury Note futures can be examined. Treasury Note prices are inversely correlated with interest rates. The 3 month continuation chart for Ten Year Notes has turned quite bearish, with a series of lower highs and lower lows. The 20 day Simple Moving Average (SMA) has turned downward and has made a bearish cross below the 50 day SMA. 14 day RSI is showing oversold at 18.82.
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