Thursday's Data Will Set the Tone

by: John Jansen posted on: July 31, 2008    

Quite a bit of U.S. data hits the tape Thursday. Investors will receive their first peek into Q2 GDP. The quarterly employment cost index is on tap as well as the weekly initial jobless claims release. The Chicago Purchasing Managers Report is also on the docket. The GDP report will provide a treasure trove of information on the state of the economy. I think the point of focus will be consumption and the influence of the stimulus checks. Economists will look to deduce the pattern of consumption for Q3 when they have the info on Q2.

The claims numbers will be of more than passing interest because it crossed the 400K mark last week. It has done that before in this rocky cycle but the series quickly turned lower. If the series persists above 400k it would spell deeper economic trouble ahead and would bode ill for consumption. The impact of this number is somewhat muted by the release of the monthly employment report on Friday.

The quarterly employment cost index is typically a very stable series. Chairman Bernanke has alluded to the wage price spiral of the 1970s and participants will scour the details of this report for signs of incipient wage inflation.

The Chicago Purchasing Mangers Survey is unlikely to cause much of a stir unless it is an outlier.

Against this background, I think bond traders will search for reasons to short the upcoming supply. Thus far positions are small because there is so much information packed into the final two days of the week. As the information provides clarity regarding the fundamentals I expect to see the curve steepen in advance of the auctions. I think traders will be restrained by the anticipation of the employment report on Friday morning and will set up for the supply in earnest at 831 AM Friday morning.

At that juncture supply becomes the focus and the street will seek spread levels and outright levels at which the market clears.

This article has 2 comments! Add yours below...

John Jansen

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This article has 2 comments:

  •  
    phinsuntanni
    ng
    Jul 31 06:04 AM
    My Website
    my guess Q2 GDP: -2% yoy
    lets see how good am I
  •  
    adan
    Jul 31 08:36 AM
    My Website
    my "guess" is the data will be dovetailed into the prevailing sentiment
    :-) ie, the info'll be more important a few days from now than in re to their true import, than the immediate market reaction'll be - just a thought

    re the upcoming supply, does seem to push rates up when so much debt keeps being issued, yuk!
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