Weekly Preview Feb. 1, 2010

  Last Week; the equity markets continued to decline in the long-awaited correction. The bond and mortgage markets took solace from the equity markets' slide but not much. Safe haven moves into treasuries were minor at best. Treasuries and mortgages ended the week unchanged on the week. The FOMC meeting didn't generate much new other than one FOMC member, KC Fed pres Hoenig, dissented against the use of the phrase "keeping rates low for an extended period", he thought with the economy improving the "extended" word was inappropriate. Q4 advance GDP was stronger than expected at +5.7% but will likely be revised lower when we get the preliminary revision next month. Treasury once again was able to get strong demand for $118B of notes sold last week. Obama's State of the Union speech was more fluff than substance in the aftermath of voter rebellion in Mass. ;cost cutting and more job growth help but not specifics. Congress increased its grandstanding to the electorate last week, grilling Tim Geithner, Treasury Sec, on the bailout details; members of the committee were insulting and rude in his treatment, demonstrating growing frustration in the House as Nov is fast approaching.
 
This Week; is employment week with Jan data coming on Friday. On Wednesday markets begin setting up for it with the ADP employment folks hitting with their estimate of jobs; ADP is expected to come out with -45K jobs in Jan but their data does not include government workers. The early estimates for the BLS report on Friday is an increase of 13K jobs, mostly in the government sectors. No Treasury borrowing this week, however, on Wednesday Treasury will announce the following week's auctions for 3 yr notes, 10 yr notes and 30 yr bonds; likely about $80B in total. Congress continues its witch hunting on the bailouts with Paul Volker and Tim Geithner on Tuesday. Much of the focus early this week will be on how stock markets perform, and the potential impact on the rate markets. So far not much noticeable safety moves from equities to treasuries. The bellwether 10 yr note, driver for mortgage rates, has been unable to decisively break its technical resistance level at 3.60%, if the stock indexes were to rally this week look for the bond and mortgage markets to see selling pressure and push rates up a little. In the larger perspective the interest rate markets have been flat with not much movement. Market volatility this week will likely be up a little with interday swings that will keep markets in check until the employment data on Friday morning.

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