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Apparently the Bulls have control because the market is discounting evidence of forward movement in the numbers and instead appears to be embracing the recent general pattern of weakness in the equity markets. With the international economic flow overnight bringing forth a batch of weak readings and a series of disappointing EU economic projections floated overnight, it is not surprising that bonds and notes are seeing a noted lift in the early morning action. In fact, the EU predicted its unemployment rate would peak out around 10.9% in 2011 and seeing rather slow economic prospects all the way out into 2011, probably extends the slowing view further than was previously anticipated by most markets. The EU also down graded the 2009 growth in the UK from -4.3% to -4.6% and therefore the shake from the overnight news flow is generally supportive for the Treasuries.
With the S&P flirting with a downside breakout ( technically a trade below 1026.20 Dec S&P) the track of equity prices appears to set to make the number flow seem a little worse than reality. However, the trade is expecting a pulse up reading in US Factory orders report this morning but after the recent discounting of favorable economic readings and the inability to hold rather impressive gains in equities, it is clear that doubt on the economy is present. While we think it is entirely premature to think the Fed will begin to tamper with their wording on holding down rates, it is possible that some traders might try to foment speculation on a removal of the stimulus stance in the statement.
The FOMC meeting is a two day meeting that ends on Wednesday, so the only impact from that event today will be unfounded speculation. With the Non-farm payroll report looming at the end of the week and Obama yesterday seemingly telegraphing another rise in the unemployment readings we suspect that Treasury prices will continue to carve out hard fought gains on the charts. All things considered, traders should view the potential setback this morning, off the Factory orders report, as a chance to buy a break with the December bond contract eventually returning to the vicinity of the October 20th highs around 121-02. With December Notes already close to the October 20th highs, a slightly higher upside target of 119-10 is possible later this week.
Corrective support this morning in the wake of the Factory orders data is seen at 120-02 in December bonds and down at 118-22 basis the December Notes. In the event that the Factory orders cross up the trade with a softer than expected reading, that could put bonds and note prices up to the October 20th highs in the wake of the FOMC statement release on Wednesday afternoon.
