The Economy and Bond Market Cheat Sheet (July 18, 2011)
The yield on the 10-year U.S. Treasury note decreased by 12 basis points this week to yield 2.91 percent.
Although initial jobless claims decreased in the week ended July 9, continuing jobless claims in the U.S. were 3.73 million in the week ended July 2. The chart below shows the number of continuing claims in thousands. The current level of claims is still substantially above the level existing in the years 2004 thru 2007. Also, the continuing claims figure does not include the 3.83 million people who have used up their traditional benefits and are now collecting emergency and extended payments under federal programs.
Strengths
- Initial jobless claims decreased 22,000 in the week ended July 9 to 405,000, which was below the consensus forecast of 415,000.
- China’s second quarter real GDP was up 9.5 percent year-over-year, above the consensus estimate of 9.3 percent, and China’s industrial production for June rose 15.1 percent year-over year versus the 13.1 percent consensus.
- In response to a question, Federal Reserve Chairman Bernanke said he expects the economy to grow at an annual rate exceeding 3 percent in the second half of this year.
Weaknesses
- Moody’s Investors Service cut Ireland’s debt rating from Baa3 to Ba1, a level below investment grade.
- The University of Michigan Consumer Confidence Index fell to 63.8 in July from 71.5 the prior month. This was the weakest reading since March 2009 and below the 72.2 consensus.
- The U.S. trade deficit increased in May to $50.2 billion, the highest level in almost three years, and above the $44.1 billion consensus.
Opportunities
- Federal Reserve Chairman Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling from here.
Threats
- The Greek bailout came and went, so the market shifted its focus to Portugal last week. This week the focus was on Italy. This has been the pattern for the last year; as soon as one issue is “resolved,” the market just moves on to the next “problem.” This pattern won’t stop until long-term solutions are implemented.
