Global rates heading higher likely to Fed’s dismay

Following the selloff in US Treasuries yesterday, European bonds are taking it on the chin and it’s not just in Ireland, Greece and Portugal. UK Gilts are down sharply sending the 10 yr yield to the highest since mid Aug after the BoE said this in their quarterly inflation report, “there are significant uncertainties around the outlook for inflation…the near term overshoot of the target may be more pronounced, particularly if there is continued strength in commodity price inflation.” In response to the rise in US interest rates over the past few days and to the likely dismay of the Fed, Bankrate.com said the average 30 yr mortgage rate had its biggest % increase last night since Sept, rising to 4.37% from 4.20%, the highest since Oct 15th. Ahead of the G20 meeting and after a bigger than expected Oct trade surplus, the Chinese Yuan moved to a record high vs the US$.

On the heels of a good earnings season, Fed induced market giddiness and a move closer to the center in DC, II said bulls rose to 48.4 from 46.7 to the highest since early May while bears fell to 23.1 from 24.4 (got as low as 22 a few weeks ago). Following yesterday’s stock market reversal on the heels of the spike in US yields and rally in the US$, this sentiment backdrop may need to see some lower stock prices in order to tame the spirits in the short term. Hopefully after this gets worked off, some tax news out of DC may then set the stage for a rally into yr end. Either way and looking past the yr end activity, the questions surrounding the actions of the Fed will only intensify I believe and after talking with many smart people at a good friend’s party last night only convinces me so.

Initial Jobless Claims totaled 435k, 15k below expectations and down from 459k last week. It’s the 2nd time in the last 3 weeks below 440k and is definitely encouraging to see. The 4 week average, smoothing out the bumpy readings over the past few weeks, fell to 447k from 457k, the lowest since Sept 12th ’08, just days before the infamous Lehman news. Continuing Claims, delayed by one week, fell by 86k to the lowest since Nov ’08 and Extended Benefits, delayed by two weeks, fell a net 285k. Bottom line, the trend in the level of firings is finally moving in the right direction with the pace of hiring improving but not to the degree it should. The key thing to watch next with claims is what happens after the Nov 30th expiration of the last extension of unemployment benefits.