Bond prices fell rather sharply yesterday after strong economic data and stocks climbed higher. While the headline ISM manufacturing index came in at 53.6, below the 55.0 consensus estimate and 55.7 October level, the subcomponents of the index were generally strong. The new order index rose to 60.3, exports rose, supplier deliveries rose, and inventories were flat. October construction spending and November car sales came in better-than-expected. Gold prices rose and have now broken above $1200. This morning, the ADP Employment Change Index posted 169,000 job losses for November, a touch higher-than-expected. This is the smallest drop since July 2008 and the eighth consecutive month during which the decline in employment was less than in the previous month. This number is a bit better from a revised 195,000 decline in October, but more than the forecast for a decline of 150,000 jobs. Rumors around the pond say the Bureau of Labor Statistics is calling for only a 123k drop in jobs this month, which would be the least since March 2008.
On a side note, Philadelphia Fed President Plosser (who will not be a voting FOMC member until 2011) said:
Looking ahead, I see an economy that will be growing over the next two years, which means real interest rates will be rising… the federal funds rate should be permitted to rise with them.
He said that higher rates may be needed before the unemployment rate and resource utilization return to desirable levels.
The market selloff yesterday and today has not yet slipped past the 8-day moving average at 119-055, which continues to be the benchmark for bullish potential in the market. That level is about where the close on Wednesday of last week occurred, thus sellers have erased all the gains that were made on the light volume Friday session. We need Bulls to respond to this dip for that bullish trend to stay afloat. The market, at the present time, seems to be following that trend. If we see a good hold at these current levels, you are bound to see a price change for the better. Stocks are off around 35 points on the big board, 10yr trading at 3.277, and mtg backs now only down 3s.