SUMMARY OF UPCOMING DATA 09/02/09

  • 8:15 AM ADP EMPLOYMENT REPORT
  • 8:30 AM PRODUCTIVITY (6.4%), UNIT LABOR COSTS (-5.8%)
  • 10:00 AM US FACTORY ORDERS (2.3%)
  • 10:30 AM EIA INVENTORY REPORT (CRUDE OIL,PRODUCTS)
  • 2:00 PM FOMC MEETING MINUTES

DATA RESULTS 09/01/09

  • ISM MFG INDX (52.9 vs. 50.5), US CONSTRUCTION SPENDING (-0.2 vs. 0.0), PENDING HOME SALES INDEX (97.6 +3.0)

US DEBT REVIEW AND OUTLOOK

US TREASURIES traded in a volatile session on Tuesday, swinging between gains and losses before ending the regular session nearly unchanged. Volatility, especially to the downside was data driven after reports on manufacturing and pending home sales showed greater than expected gains.  Markets sold off the lows of the session as equities reversed their earlier slump for a brief period. Treasuries also came under some pressure from an early report stating that Bank of America may seek to pay back some of the funds it borrowed from the government.

The positive news only briefly supported equities as concerns regarding the sustainability of global recovery once again came under the spotlight. Equities, not surprisingly, fell to their lowest levels in over a week, with the S&P 500 futures contract trading through the 1000 mark.

The equity weakness provided support for Treasuries, with the chase for yield in government bonds slowing somewhat for the second session as gains in US 5 and 10 year notes outpaced US 30 years. The lessening commitment to the longer points of the yield curve could have been influenced by the apparent rotation of interest in the corporate debt market from higher yielding to less speculative investment grades of debt.

In addition, reports are showing that larger bond fund managers such as Pimco are rotating out of some high yield debt due to the less attractive risk reward ratio of yield. The bond funds appear to be reconfiguring portfolios with more concern regarding security and potential defaults. Apparently, the securities being looked upon favorably to get the job done are investment grade corporate debt and Treasuries. This may be offering some support for the upside of the range, especially during employment data week and no new reminders of supply via major Treasury auction announcements. The apparent stalling of gains at this level though could suggest a potential pull back in Treasury futures later in the week.

Technically, support and resistance targets essentially remain in place. Sept 30 year futures bounced off resistance level at 121-17. Initial target of 122-07 remains in place. Initial support for contract remains at 119-19, with a break below this support offering a target of 118-18.

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US EQUITY REVIEW AND OUTLOOK

US EQUITIES broke to their worst levels in over a week, as financials led the markets lower in spite of stronger than expected readings on manufacturing, pending home sales, and new auto sales. Financials led the markets lower with AIG, Wells Fargo, and Citigroup among the biggest losers. Signs of a possible stall in the recovery engine appear to be on the horizon in addition to normal sentiment regarding September and October being historically negative periods for stocks.

It was not surprising that equities offered this pullback. The question will be if this represents a true pullback and a return to normal market patterns as equities could be setting up for a end of the year rally. This may likely depend on the ability of the markets to maintain recovery momentum without some of the specific support mechanisms for housing and auto sales. Traders and investors should likely turn their focus to remaining stimulus support measures. In particular, the current and future direction of interest rates as they pertain to the economic climate that will likely need continued priming as spending overall appears to be picking up at a pace that will warrant stepping off the fiscal gas pedal. Watch FOMC meeting minutes especially going into December as they may be a strong catalyst for increased market volatility.

Technically, Sept S&P futures tested and broke our key support levels today (1008.00 and 1000.00). Continued selling pressure should meet up with support at 992.00 and 988.00, with 988.00 likely to hold as a point where initial short covering retracement to 998.00 could take place. Look for resistance to set up in short term at 1006.50, with a break of 1016.25 signaling a possible move back toward previous resistance of 1026.70.

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US U9 (US 30 YRS)

120-26

121-19

119-29

121-07

+9/32nds

SP U9 (S&P 500)

1014.70

1027.80

995.20

996.50

-23.20