The RateWatch
 Commentary by Bill Brizendine of Melody Capital MarketsAt 113,000, job growth in July was even weaker than a weak forecast of 144,000 had anticipated. Further, unemployment rose unexpectedly from 4.6% to 4.8%. So, in a classic “bad-news-is-good-news” response, both the bond and equity markets bolted into an immediate rally. The yield on the 10-year Treasury fell to 4.89%, down 10 bps for the week. That’s a 33 bp drop over the last 6 weeks and the lowest week-ending close since March. (The stock market later reversed itself with most indices closing down for the day; it seems that upon further reflection investors decided that a slowing economy was not the best of news.) To be fair, the motivation behind the rally was not joy at the plight of frustrated job-seekers and the unemployed; rather, it was the anticipation that the Fed will choose not to raise the federal funds rate (for an 18th straight time) at Tuesday’s meeting, given yet more evidence that the economy is slowing. “The economy has lost a lot of momentum and we haven't seen the worst yet . . . the Fed cannot [bold italics ours] tighten,” bloviated one analyst. Whoa’ there; the Fed “cannot tighten” . . . not sure we want to wave that piece of red meat in front of a Fed Chairman still trying to earn his spurs as the next Greenspan. Nonetheless, for the first time in a while we think that maybe -- just maybe -- the Fed might hold its water. But don’t count on it. Tomorrow will be very revealing; there is plenty of fresh evidence that the economy is slowing but we also saw some sizzling retail sales figures and rising labor costs along with a core inflation rate well beyond the Fed’s “comfort level”. Which set of figures the Fed chooses to focus on will tell us a lot more than anything else they do or say. Best case: we will have a “pause” accompanied by a stern warning not to get used Download the RateWatch |