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Daily Market Commentary

New home sales came out pretty soft yesterday, and more importantly last month's number was revised significantly downward.  This put a bid under the bonds as traders continue to weigh the weakness in the housing market vs. the inflationary pressures elsewhere.  Throughout the day, however, the gains bled away and we finished slightly higher on the day.


  We won't be seeing any Canadian data until GDP Friday, so we'll be trading in sympathy with the US market for most of the week.


Fed Funds options implied probability continue to show a 73% likelihood of a rate cut at the September meeting - and unchanged until then.  With the Fed's Moskow continuing to talk about the dangers of inflation outweighing the prospect of economic softness, we can see why it will be so long.  However, if we see the weakness in yesterday's housing print leak into employment numbers, expect that cut to come sooner.  Americans are still well employed and well paid.  Until that stops, credit cards and mortgages will continue to be paid, and with the strength of the corporate sector, a strong economic downturn is unlikely.


Watch the personal income number Thursday and spending Friday.


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