This Week Brings Forth a lot of Data

This week has a lot to chew on for traders. Key data through the week culminating with the March employment situation on Friday. This morning, we had February personal income and spending, which came in a little better than anticipated, but like we have seen in the past, revisions have taken a forefront as the January numbers were decreased more than double to offset any positive from the news in February. There was no noticeable reaction to the report. Yr/yr c ore PCE holding under the Fed’s 2.0% target but slooowly increasing - Yellen tomorrow should have a comment although obtuse as she and other Fed officials specialize in.

Europe is closed today for Easter Monday as the US was on Friday.

This week March employment is again this Friday but in the meantime there are a number of key economic reports and Treasury borrowing $88B in 2s, 5s and 7yr notes. Janet Yellen will speak tomorrow in NY. Recent Fed speakers, mostly regional presidents, have generally been more hawkish about another rate increase leaving in the air the potential of an earlier increase than was expected. As usual though there were conflicting opinions from the Fed officials speaking. Yellen’s speech tomorrow will be a key focus for traders and investors and may add additional focus to the March employment report on Friday.

The Fed wants to increase rates, and the Fed wants to do it soon; recent hawkish Fed comments from those regional Fed presidents appears to be coordinated in the remarks to set the tone a little firmer. Yellen tomorrow will be on the hot seat, either ratifying the recent remarks or softening the increasing idea the Fed will move quicker than what was expected just two weeks ago.

NAR reported February pending home sales with greater numbers from January, but again January revisions softened this report.  Even with the best sales data in seven months, there is no direct reaction to the better sales.

At 1:00 this afternoon, Treasury will sell $26B of 2yr notes. Demand for short end notes at times reveals clues about investors thoughts about a rate increase. Two weeks ago Treasury auctions of 3s, 10s and 30s were soft on demand.

The last seven sessions have traded in very narrow non-trending ranges in the bond and mortgage markets. The technical models remain neutral at best but slightly negative. I am completely focused on 1.85% for the 10yr note (1.87% now at 10:30AM).  Until the 10yr can crack it the rate markets remain slightly bearish. If the 10yr cannot break 1.85% this week, I expect selling will increase taking the 10yr to 2.00% and MBS prices down 30 to 40 basis points by Friday. There is enough data this week and Yellen’s speech that should somewhat solidify what investors expect for a rate increase timeframe. The prism of market factors is still uncertain, numerous factors in play now. The stock market will likely be key.

My recommendation, let’s cautiously float unless you are ready to close in the next fifteen days, where the difference could be too much one way or another.