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!
We are a little surprised to see Treasury prices still holding close to the recent consolidation high zone around 117-28 in March bonds, especially after stories surfaced overnight about China potentially moving to reduce its holdings of US debt. While some might have been inclined to press US Treasuries in the wake of ongoing debt concerns, there is a fresh movement afoot in Washington to meet the publics cry for reigning in US spending. However, seeing ongoing gains in global equity markets this morning in the wake of favorable corporate earnings flow yesterday and also in the wake of two favorable US economic reports on Tuesday, would seem to leave the bear camp with a slight edge today. We also have to wonder if an ongoing political shift in the US is serving to tamp down ideas that financial reform will not end up stripping the banks of their trading capacity.
Seeing the banks stripped of holding anything but US Treasuries, might have contributed to the 5 point rally off the December lows, but until there is a distinct shift in the tone of the financial reform effort, one shouldn’t expect Treasuries to begin to fall off that angle. However, Treasuries have to be a little concerned about the Chinese scaling back their US holdings, but apparently inflation expectations have been tamped down in the last 24 hours by comments from the Minnesota Fed president yesterday and also because of BOE statements that suggested inflation might only be set to come back up to target levels if quantitative easing was left in place longer than necessary. With a surprise increase in UK unemployment readings seen overnight, that news probably serves to temper the recent improvement of global economic sentiment but higher US equity market opening indications has certainly left the bears in the Treasuries with a bit of an early edge. However, the key feature of the Wednesday trading session should still be the US housing starts and permits data, which we think will show mixed results. Most expectations call for a rise in housing starts, but we think that the permits reading (which can be a leading indictor) will come in softer than expected and that could give rise to a March bond rally back to even number resistance of 118-00, with a similar upside potential in March Notes initially pegged at 118-10.
We then suspect the Treasury market will be knocked back a bit in the wake of the second set of scheduled US economic readings (Industrial Production/Capacity Utilization) as the expectations for those figures mostly call for gains in both of those readings. In the end, unless the US housing permits are “headline” weak, we suspect that rallies in Treasuries should still be sold on a short term basis but traders do need to be aware of a speech due just ahead of mid session from the Philly Fed President. At least for the time being, flight to quality interest in US Treasuries looks to be on the wane and that should make it difficult for the markets to take out and sustain above this week’s highs on the charts.
