Friday, 18 April 2008

US Treasuries fall despite weak Philadelphia Fed index

Traders are betting that the end of Fed easing may be near. From Bloomberg:

Two-year notes dropped a fourth straight day, the longest slide since December, as Dallas Fed President Richard Fisher said he's hesitant to lower rates further...

Most traders are betting the Fed will cut its target rate by just a quarter-point to 2 percent on April 30. Futures on the Chicago Board of Trade show an 82 percent chance of that size reduction, up from 58 percent a week ago. The rest of the bets are on a half-point cut. Traders now see a better-than-even chance the rate will stay at 2 percent through year-end.

This is despite a weak April report for manufacturing in Philadelphia. From Bloomberg:

The Federal Reserve Bank of Philadelphia reported that its general economic index in April fell to minus 24.9, lower than economists had forecast...

But it was not all bad.

... The index measuring the manufacturing outlook for six months from now rose to 13.7 from minus 0.5.

Other data released yesterday showed that the US economy is weak but did not clearly point to a recession.

The Labor Department reported earlier today that initial claims for unemployment insurance increased by 17,000 to 372,000 in the week that ended April 12. The number of people on benefit rolls climbed to 2.98 million the previous week, the most since June 2004.

"These numbers are consistent with a soft labor market, maybe continued job losses, but not a big collapse in the economy," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut, in an interview with Bloomberg Television.

The Conference Board's gauge increased 0.1 percent, as forecast, after falling 0.3 percent in February, the New York- based private research group said today...

"While latest data do not support the assertion that we are in a recession, growth remains weak, a situation that may continue," Ken Goldstein, a Conference Board economist, said in a statement.

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