The Day Ahead: Treasuries Rally as Egypt Protests Continue
The benchmark 10-Year Treasury weakened by seven basis points Thursday to close at 3.71%. Treasuries then strengthened overnight in light volume as Tokyo was out on holiday. Traders appeared to focus their efforts on continued unrest in Egypt and technical support at 3.70% in the 10 year note. Equities are starting the day in the red again ahead of the monthly trade balance and a mid-month look at consumer sentiment.
Turmoil in the middle east seems to be the culprit, as Al Arabiya television reported that President Hosni Mubarak had exited Cairo from a nearby military airbase. No source or destination were given.
“Renewed unrest in Egypt and Moody’s downgrade of six Irish banks’ credit ratings to junk status ― following a similar move by S&P last week ―have global equities and U.S. stock index futures trading lower,” said economists at BMO Capital Markets.
They noted the unrest is giving a strong bid to Treasuries and the greenback, as the US$ index jumped to its strongest level in three weeks. The 10 year note is +12/32 at 99-23 yielding 3.659% and the FNCL 4.5 is +7/32 at 100-08. S&P 500 futures are down 4.00 points to 1,314.75 and Dow futures are 29 points lower at 12,165.
Commodity prices are mixed. Light crude oil is trading 0.59% higher at $87.24, while gold prices are up 0.05% down at $1,363.60.
Key Events Today:
8:30 ― The monthly gap in December’s Trade Balance report is anticipated to grow to $40.5 billion, from $38.3 billion a month before. The November report narrowed thanks to a 0.8% gain in exports (including a 1.2% increase in nominal goods exports), while imports rose just 0.6% (mainly a result of energy needs; imports excluding petroleum actually fell 0.1%). But imports are anticipated to outpace exports in December as demand for petroleum speeds up after two weak months.
“Even with the wider deficit in December, trade will remain a strong boost to GDP growth in the fourth quarter of 2010, with imports falling across the board and exports showing strong momentum,” said economists at IHS Global Insight.
9:55 ― Consumer Sentiment could be on the upswing this month as the stock market continues to improve and the unemployment rate falls. The benchmark S&P 500 improved 2.26% in January, while the unemployment rate ― viewed with skepticism by many ― has fallen to 9% from 9.8% in the past two months. Also, the mid-January report showed the expectations component inch forward to 68.2, the highest level since June.
“The current and expectations indices are both expected to increase, with the current situation index increasing faster,” said economists at IHS Global Insight. “The Dow Jones Industrial Average has moved through the 12,000 mark, boosting consumer sentiment despite a poor housing market, uncertainty in the Middle East, inclement weather, and high fuel and food prices. We expect the consumer sentiment and spending momentum that built up in the last two quarters of 2010 to spill over into 2011.”
Economists at BBVA also look for an increase, but say modest improvements won’t be enough to change their assessments of private consumer spending.
“Consumers’ confidence has remained virtually flat since mid-2009, reflecting a sort of wait-and-see attitude towards spending,” they wrote. “Indeed, even though private spending has recently gained momentum, consumers are still affected by lack of credit, deleveraging and uncertainty in the labor market.”
10:15 ― Fed to purchase an estimated $6-8 billion in Treasury Coupons maturing between 8/15/2016 and 1/31/2019.