Weekly Unemployment Claims hit the tape plus 11K to 531K, well above the 515K economists had expected. Continuing Claims when the other way, falling 98K to 5.92 million, a level not seen since March 2009. The fall in Continuing Claims looks good on the surface but in reality reflects unemployed workers exhausting their 26 week’s worth of benefits.
Construction and Manufacturing employment continue to be a drag on the index. LEI, Leading Economic Indicators for September, rose 1.0% versus a plus .8% expected. Of the 10 composite indices, 8 posted increases. Manufacturing new orders and nondefense capital goods orders were the decliners and will tend to drag the Durable Goods report down (due for release 11/28). Last but not least was the FHFA Home Price Index which fell .3%. Only 3 of the 9 census tracks had price improvement including the Pacific, the Mountain region, and the West North Central. The Middle Atlantic and East North Central regions reported home price decline of .6%.
Market action has been mixed with early selling followed by heavy cash buying to steady out the market. The selling is believed to be hedging for upcoming corporate bond deals while the buying is being done by Foreign Central and Japanese banks. Technically, the picture has changed to one that is neutral to bearish.
The 40 day moving average continue to hold, making a high powered selloff unlikely. Daily stochastics are bearish yet the weekly picture holds a bullish reading. When we have conflicting time frame direction, the market tends to be range bound with a lean towards the shorter time frame. In this case, playing defense is your best bet with expectations that the 10 year note will hold in a range of 3.38% to 3.48%. Currently, we are trading 3.41%, unchanged on the day. Stocks are up 61 points on the big board and mortgage backs (4.50% coupon) are a twin to the note, unchanged as we speak.