The Economy and Bond Market Notebook (5/15/2010)
The yield on the 10-year Treasury changed very little for this week, ending at 3.46 percent, up 3 basis points.
The labor market is improving, but at a slow pace. Initial jobless claims for the week ended May 8 fell for the fourth week in a row, but the number of Americans continuing to receive jobless benefits remains high. The chart below shows the number of U.S. continuing claims for employment in thousands. On May 1 the number stood at 4,627,000, not counting the number of Americans receiving extended benefits under federal programs. The number of persons collecting emergency and extended payments decreased by about 200,000 to 5.36 million in the week ended April 24.
Strengths
- Industrial production rose in April by 0.8 percent from March, the largest gain in three months and slightly larger than the 0.7 percent consensus.
- Retail sales rose in April for a seventh straight month, increasing 0.4 percent from March and exceeding the consensus of 0.2 percent.
- The U.S. trade balance deficit rose 2.5 percent sequentially to $40.4 billion in March. It was the largest monthly trade deficit since December 2008, and indicated evidence of a recovery in the U.S. economy.
Weaknesses
- The Greece sovereign debt crisis continues to create market uncertainties. Concerns of a full-blown credit crisis have surfaced and cannot yet be ruled out.
- The home mortgage purchase application index fell 9.5 percent in the week ended May 7, the first week after the government home purchase incentives ended.
- The federal budget deficit hit an all-time high for April at $82.7 billion, higher than the consensus estimate of $57.9 billion.
Opportunities
- The best outcome would be a coordinated, comprehensive solution to not only the Greek debt situation, but a broader approach that includes all of Europe.
Threats
- Until the Greek situation is resolved with some degree of certainty, the market will be at the whim of macro risk factors.
