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Treasury prices are showing signs of settling back off the latest new high move and once again the reasons behind the softer action seem to be partly the result of short term technical imbalances and partly because of the residue from the prior session’s run up in equity prices. It is also possible that further talk of a second US stimulus plan is rekindling concern of additional supply again, even though the market was well aware of the prospect of a plan in the face of the rally on Tuesday. However, comments from Senator Reid and House Speaker Pelosi overnight might suggest that the plan is emerging in more force. In fact, Senator Reid acknowledged that the plan could include up to $100 billion for Green projects and that alone highlights the potential size of the entire package. It is also possible that the Treasury market is being pressured as a result of the latest news from the US Auto sector, which seems to suggest that conditions are worsening dramatically, with Chrysler indicating they will need an emergency loan before the end of December. Apparently the Auto makers are now asking for $34 billion in loans and since that amount is seemingly on the rise that alone could be fomenting concerns of surging US Treasury supply.
With the US economic report slate becoming more active today and potentially containing data that would facilitate a December US rate cut, it is possible that Treasury prices will respect close-in support on the charts and potentially turn back to the upside well ahead of the close today. In fact, we suspect that productivity readings will rise sharply this morning and that should embolden the Fed, while the ISM Non Manufacturing reading is also expected to show weakness and that in turn should embolden the buyers of Treasuries.
Traders should also acknowledge the release of the Fed Beige book later in the trading session today especially as a recent FOMC meeting minutes release highlighted significant concern of more severe slowing at the Fed. The trade will also see a private jobs report early in the trading session today and while the private monthly jobs reports don’t seem to exactly mirror the official numbers that closely, we suspect that private jobs estimates will generally point to a worsening of the economy. In the end, seeing the historical auto sales plunge in the prior trading session, should leave the market in a position to fan the fears of slowing consistently over the coming three trading sessions. In the end, without the threat of a stimulus package and the fear of more borrowing ahead, the Treasury market would probably be capable of exploding for another big run on the upside, especially given the upcoming data flow expectations.
