News Details (Posted: December 3, 2006):

Money Market Recap & Forecast: The week of Nov. 27

Full Description:

A shortage of economic news left U.S. Treasury traders to fend for themselves last week, but they found reason to rally when the President’s Council of Economic Advisers lowered its estimate for economic growth for both 2006 and 2007. Weak housing aside, Treasury Secretary Henry Paulson said, “The U.S. economy is moderating to more sustainable growth levels, firmer labor markets and steady inflation rates.”

Traders now believe that the Fed will not have to raise interest rates, and buying sent Treasury yields, which move in the opposite direction of prices, back down to previous low levels. Mortgage rates, which are based on yields, remained attractive.

Then Friday Treasuries rallied again, benefiting from safe-haven buying; as the dollar sank against the euro, consumer confidence reports from Europe soared and concerns about the strength of the U.S. economy came to into question, again -- all this on a day when nothing was expected to happen. The yield on 10-year note tumbled to 4.53% in early trading, a good sign for mortgage rates.

The October index of leading indicators, which looks at the economy three to six months ahead, rose 0.2%, indicating slow but steady growth. Paired with the 0.4% gain in September, these are the first back-to-back increases since January of this year.

First-time unemployment claims took a surprising leap upward, climbing by 12,000 to 321,000. Analysts still believe, however, that the labor market is stable and healthy. The more reliable four-week average also moved upward to 317,000, while continued claims -- those people receiving benefits for more than one week -- edged up to 2.45 million.

In spite of falling mortgage rates, applications continued to decline, according to the Mortgage Bankers Association. For the week ended Nov. 17, applications to purchase were off by 2.8%, while refinances fell 4.3%.

November ends with a bang considering last week’s news drought, but the economic releases don’t start pouring in until Tuesday. That’s the day we get three indicators with market-moving ability.

First out is the October report on orders for durable goods -- expensive items meant to last more than three years. Although this report is volatile, it can indicate future manufacturing activity, and it is a good barometer of business spending via the demand for non-defense capital goods.

The consumer confidence report for November, the first since the election, is also due. It has been holding at a relatively high level, indicating that the consumer is ready to spend. Existing home sales for October will either show that the housing market is continuing to slide or that it is stabilizing. Most pundits are on the side of stability.

Third quarter gross domestic product (GDP) will offer its first revision after a low initial reading of 1.6%. Predictions call for an up tick, but only a slight one. The GDP contains an inflation indicator (PCE), which will get the attention of the Fed. Also on tap are new home sales (NHS), which rose in September, but are not expected to repeat that performance in October. The so-called Beige Book is released 13 days prior to each Fed meeting; the report examines economic conditions in each of the 12 Federal districts and can move the markets.

Thursday features personal incomes and outlays, which will be looked at not only for changes in income, but also for a second inflation indicator that is highly valued by the Fed. First-time unemployment claims for the week ended Nov. 25 are also scheduled.

Friday, Dec. 1, offers typical early-month reports. The ISM index on November manufacturing conditions can impact Treasuries if it shows unusual strength or weakness. Construction spending for October will also be released. The employment report, usually released the first Friday of the month, has been pushed back to Dec. 8.