It’s been an interesting few days in markets as several huge factors continue to jockeying for position as the most important market-mover. That’s created a bit of confusion as to what have been the most important events of the past several days and what will be important in the near future. Certainly on the list, we have Operation Twist, although the extent to which that was accurately priced-in ahead of time is still being determined–made more difficult even by the other factors. European headlines are a perennial favorite as well. The recapitalization article last night didn’t do the bond market any favors.
Then there’s NFP coming up on Friday. Econ data hasn’t been that important of late, but it seems risky to apply that same lens to a jobs report, especially when it falls on a week with no major disappointment in terms of economic data. Finally, the importance of technical analysis amidst the current uncertainty can’t be overlooked. Things have been, and continue to trade very technically. With that in mind, here’s where we stand at the end of the day with respect to several trends we’ve been watching:
Both MBS (above) and Treasuries (below) remained relatively close to the supportive levels they’d been trying to hold today.
Stock prices closed ABOVE the long term trendline pictured below (and seen in a few recent posts), although this is effectively “on the fence,” and feels like things could still go either way. In other words, the fact that prices are higher than a trendline that I chose to draw is incidental. I wouldn’t say any breakout or bounce has been confirmed or rejected. And we’re probably waiting for NFP for the final verdict.
Finally, a quick note on MBS spreads. O-Twist hasn’t been kind to MBS valuations, but it’s worth noting that spreads have bounced again along a trendline that did a really excellent job of leading them higher/wider heading into the last FOMC announcement. They may have spiked higher since O-Twist, but they were not willing/able to break back into the really ugly widening trend of the past. As we noted, spreads could be choppy for a while, but the Fed’s reinvestment should ultimately backstop MBS Spreads around recent highs/wides.