Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
While the Treasury market seems to have lost some upside momentum this week, the December bonds also seem to have forged a quasi double top around the 121-27 level. However, the markets might lack the usual direction from the Asian markets this morning as the Chinese are on holiday.
There will be no holiday from the US scheduled data flow as today is an extremely active session, with two forms of reports on employment, readings on personal income & spending and more Fed dialogue. With the Non farm payroll report looming on Friday, the trade is likely to pay a lot of attention to a private jobs report and the initial claims Readings. We are somewhat surprised that the markets have been unable to sustain in new high ground, as the data was at best mixed and the Fed continues to predict that the recovery is going to take a very long time. We would think that the news of an end to the Saturn brand would spark increased attention on jobs losses into key US data ahead.
With the early equity market action somewhat soft today and a German retail sales report overnight showing weakness, there would appear to be lingering concern for the pace of the recovery. However, the Japanese Tankan survey overnight also showed another month of positive readings and that in turn probably countervails the IMF call overnight for more global stimulus to end the global recession.
While we assume the path of least resistance is pointing upward, seeing December bonds trading above 122-00, into the Friday report, could mean that anything even slightly better than expected will result in a moderate correction. However, after mostly favoring the bull tilt over the last six trading sessions, the Treasury market failed to get a noted run up off the larger than expected private jobs loss survey yesterday. With the Yield curve also steepening yesterday, that might also be putting the brakes on the bull track and for that reason, we suspect some bulls have temporarily lost their resolve. We also suspect that the market is squaring positions ahead of the report and that means a slight reversal of the upward bias of the last two weeks. In fact, some analysts this morning predicted a Non Farm payroll loss below the 200,000 level and that from a psychological perspective, would have the capacity to knock the December bonds back below critical close-in support on the charts of 120-25. Critical close-in support in December Notes is seen at 117-31 today.
With the markets basically accepting of an up tick in the unemployment report on Friday, it is possible that a weak number has been factored into prices already. While the markets will certainly “jump” in the face of a weaker than expected payroll reading, the rather narrow pace of gains over the last two weeks does seem to suggest that the reward of being long from above the prior session’s highs, might not be enough to weather upcoming risk.
