Chris Rupkey
Chris Rupkey
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Is the soft-patch bond rally over? It's a tough call, but we don't think so, as the reasons for the soft patch, rising gasoline prices at the pump, are still there.
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They're not on the sidelines yet. The inflation pressures are immense at this stage of the business cycle.
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The curve should be flattening if the Fed is assumed to be still tightening.
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All eyes will be on the jobs report. The Fed is still worried with inflationary pressures, and may very well not be done with rates. But as long as the economy keeps growing without a substantial pickup in inflation, we may see bonds falling and stocks rising.
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The details of the GDP report may have given Treasuries a boost as the Fed's preferred inflation target, the core personal consumption expenditures index, was revised down to 1.7 percent from 2 percent for the first quarter,
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The markets were prepared for Greenspan to end his final meeting with the funds rate at neutral. What they got instead is the statement that rate hikes still 'may be needed.' This was not music to the market's ears.
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The economy is creating over two million new jobs a year and these workers will need housing. Fears of a collapse in the housing market have been overblown.
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The economy surprised on the upside and inflation was a surprise on the upside so (10-year Treasury) yields tested the level we hit last week which was 5.14 percent.
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The market is on guard after Broaddus reminded us that the day of reckoning when the Fed raises rates is drawing nearer and the rebound in global stock markets is adding fuel to the fire.
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The jobless claims number went up quite a bit, but the idea here is that because it stayed below 300,000 there's a good chance that the U.S. unemployment rate continues to fall.
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It's not like the deficits back in the Reagan years because the economy is much larger now, so theoretically we can handle this amount of debt.
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The Fed is still going to be on guard in terms of monitoring inflationary pressures, but this has to be good news today.
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That leads to expectations that the Fed is still going with its series of rate hikes.
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Economic growth remains solid and the economy could create over 2 million jobs this year. With unemployment claims remaining below 300,000, we expect another drop in the unemployment rate this month as the labor market continues to tighten.