Morning Futures Roundup
Bonds Remain Quiet Ahead of December Non-Farm Payrolls Report
The Treasury Bond futures market has been rather quiet since November, as prices have been contained in a relatively narrow 6-point price range. The lack of movement in prices has much to do with the mixed psychology of market participants. On one hand, continued fears of an expanding European debt crisis has sent fresh buying into US Treasuries, as traders still consider US government debt as a "safe haven" investment. On the other hand, a slew of improving US economic data, especially on the employment front, has taken some of the luster from Treasuries, as a sign of an improving economic outlook should draw funds into more "risky" assets and away from Treasuries, especially at current low yields.
The jobs picture got some additional good news on Thursday, as the ADP private sector jobs report for December showed that 325,000 private sector jobs were created last month. This was the largest gain reported in 2011, and was well above the 180,000 jobs increase that many analysts were expecting. The improving jobs picture received further confirmation by the 15,000 decrease in jobless claims last week, according to the Labor Department. Jobless claims fell to a seasonally adjusted 372,000 last week, and the 4-week average fell to 373,250, which is the lowest level in nearly 2 Ω years.
This good news on the jobs front may force traders to raise their estimates for this morning's release of the December Non-farm Payrolls Report. The current consensus estimate is for a gain of 150,000 jobs in December, with the private sector adding 170,000 jobs. The public sector is expected to have shed an additional 20,000 jobs last month, as both state and local governments are forced to cut jobs due to increasing budget deficits. The unemployment rate is expected to tick up 0.1% to 8.7% following the surprising drop of 0.4% last month, although the drop was mostly due to a reduction in the size of the workforce and not new job creation. Any major deviations from the consensus estimates may finally awaken Bond market traders from their 2-month slumber, and prices may finally move out of rather narrow price band.
Looking at the daily continuation chart for Treasury Bond futures, we notice that the price consolidation that has occurred since November took place on much lower than average trading volume. Prices have recently closed below the 20-day moving average, perhaps giving bearish short-term traders a slight edge. The 14-day RSI is neutral, with a current reading of 47.65. Support for March T-bonds is seen at the November 4th low of 139-20, with resistance found at the December 19th high of 146-11.
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