The Economy and Bond Market Diary (July 12, 2010)
Treasury bonds sold off this week sending the yield on the 10-year Treasury higher by about seven basis points. The 10-year Treasury closed the week at 3.05 percent.
The number of continuing jobless claims decreased by 224,000 in the week ended June 26 to 4.413 million, slightly better that the 4.6 million forecast. However, the chart of U.S. continuing jobless claims below indicates that the status of employment has not seen very much improvement this year. In addition, the continuing claims figure does not include 4.58 million Americans receiving extended or emergency benefits under federal programs in the week ended June 19.
Strengths
- The International Monetary Fund raised its forecast for global growth in 2010 to 4.6 percent, up from the previous April forecast of 4.2 percent. The increase reflected a stronger than expected first half. Their report warned that recent turbulence in financial markets has cast a cloud over the outlook.
- Initial jobless claims for the week ended July 3 decreased by 21,000 to 454,000, slightly better than the 460,000 forecast by economists.
Weaknesses
- The Institute for Supply Management’s index of non-manufacturing businesses fell to a four-month low of 53.8 in June from 55.4 in May, coming in lower that the consensus forecast of 55.
- The Mortgage Bankers Association’s index of mortgage applications for home purchases in the week ended July 2 fell 2 percent to the second lowest level since 1997.
- Revolving consumer debt, which includes credit card debt, dropped by $8.5 billion in April. The decline was the 19th straight and signals consumers are taking steps to reduce debt.
- Retailers’ same-store-sales for June were mixed. A Thompson Reuters index of 28 retailers showed that same-store-sales in June were up 3.1 percent, but that 56 percent of the companies missed the analysts’ estimate.
Opportunities
- Inflation is unlikely to be a problem for some time and this gives central bankers and other policy makers around the world room for expansive policies.
Threats
- The risk of austerity measures going too far and significantly diminishing economic growth is a real risk.
