Treasuries Not Pressured Overnight

STOCK INDEX FUTURES

Global equity markets overnight were mixed overnight with Asian stocks tracking higher on catch up buying to the Thursday US rally. While the US equity markets on Thursday anticipated the $953 billion infrastructure compromise, the reality of a bipartisan deal in the Senate should provide economic optimism today. This morning’s early rally is partially the result of strength in Nike shares which in turn provides buying interest in the Dow which has been the markets laggard. We do not expect to see a huge equity market reaction to the US PCE index release unless the reading is “above” expectations of +0.6%. Cleveland Fed President Mester, Boston Fed President Rosengren and New York Fed President Williams will speak during afternoon US trading hours. Earnings announcements will include Paychex and CarMax before the Wall Street opening.

 CURRENCY FUTURES

DOLLAR: We hope that today’s PCE index, personal income, or personal spending readings will result in a definitive reaction in the dollar which in turn will provide a “market focus”. At present the dollar could rally on hot PCE readings off ideas that higher rates are getting closer rather than further off. On the other hand, the dollar could decline off a decline in economic uncertainty in the-event that economic activity readings this morning are judged to be slowing (personal income and spending). All things considered the charts are negative toward the Dollar Index, but the downside could be limited by chart support at 91.50.

EURO: The charts in the Euro are bullish with a possible key low forged last week and a return up into a wide trading range bound by 1.20 and 1.23. On a corrective setback and the failure of close in support at 1.1930 we suggest traders purchase September euro calls.

INTEREST RATES

While the US equity markets on Thursday anticipated the $953 billion infrastructure compromise, the reality of a bipartisan deal in the Senate did not pressure Treasuries overnight as would have been expected. However, the potential of a catch-up selloff from yesterday’s bearish developments is possible this morning if the PCE index jumps by more than 0.6% on a month over month basis. While there are a-number-of Fed speeches today, the speeches are scheduled for the afternoon and therefore may not have as big of an impact on bonds and notes as would be expected. In fact, bonds and notes have forged extremely narrow daily ranges (over the last several sessions) and that suggests to us Treasuries are not easily pressured or lifted. On the other hand, trading volume has declined following the massive spike up breakout on Monday (that is partially confirmed by this week’s pattern of declining open interest) and to us that suggests the markets lack of interest in bonds with prices above 160-00. Clearly, the treasury bond market remains within an uptrend pattern that began in early May, but prices have been glued to the 160-00 level in September bonds on a closing basis for 5 sessions. Indirect outside market negatives for treasuries include a series of new all-time highs in equity markets this week, another increase in US weekly implied gasoline demand readings and just enough positive US scheduled data to ward off slowing talk.