Last Week’s Highlights:

Stocks:                               Financial earning weak

Bonds:                               10-yr starts to lift – 3.88%

Oil:                                     Pull back from the highs

Dollar::                               Brief rally to 1.55

Existing Home Sls:           A slip lower after the Feb bump up

New Home Sld:                Soft again

Economics This Week: 

Date      Item                                  Est.                     Comment

4/29      Consumer Conf                 62                         Slipping lower

4/30      GDP Q1 Prelim                 0.5%                    Treading water

4/30      FOMC                                25 bps                  Is this the last cut?

5/2        Employment                      5.2%/-80K         More jobs lost                 

Econ Packed Week – GDP Center Stage

This Wednesday we’ll get our first glimpse of Q1 GDP. The consensus is varied among the big shops, with some suggesting a -0.50% decline and others suggesting as much as a full 1% in growth. The consensus appears to be near +0.5%. If GDP comes in positive it could very well generate thinking that the economy may be on the way toward a soft landing.  One of the real positives expected in this report will be the continuation of export strength. While housing and the financial markets have been getting all the bad press, the good news on exports seemingly misses the nightly news. You have to wonder if the “bad news is good for television ratings” issue is really taking hold in a politically charged election year – Ya think? Maybe some good will come of the rebate checks being sent this week. With any luck maybe a few people will actually spend the money.

So here’s some good news – the dollar remains as weak against the euro and yen, but it’s exactly this weak dollar that is fueling export trade. The fact is that the dollar volume of exports is three times as large as the amount spent on housing construction in the US economy, and it’s also three times as important in the GDP data. According to the Bureau of Economic Analysis, exports in the fourth quarter GDP were at a $1.731 billion annual rate. Exports are up 13% over the past year. In contrast, residential construction was one-third of that, at $584 for Q4. The end result is that the narrowing in the trade deficit has added more to GDP than the plunge in housing has negated.

Fed Time – More Liquidity Please

In addition to the huge GDP read this week, we’ll also get the FOMC meeting on Wednesday. The market has priced in a 25 bps rate cut this time around. As mentioned last week, what seems to have changed in the last month is the Fed’s continuation of liquidity into the summer. Indeed, there are many who now suggest the cut this week might be the last from Bernanke and company. After this Wednesday’s meeting the Fed meet next in late June and then early August. A look at the fed fund futures suggest that rates may be on the rise in the latter part of the year as the inflation fighting begins.

Consumer & Jobs

Tuesday’s release of the Consumer Confidence Index is not expected to help much on the sentiment side, with most calling for yet another slide lower in the number. Paying $3.50 to $3.80 per gallon for regular at the gas pump doesn’t make too many people feel too good about the economy. And speaking of yet another tough data read: on Friday the employment data is due out and expectations are for an unemployment rate of 5.2% and a loss of about 80k in jobs.

Bonds on the Rise

After months of “flight to quality” rally, the Treasury market is starting to show signs of unwinding. Last week, the 10-yr Treasury ended close to 3.9% after having spent a considerable amount of time near 3.5%. Some of it was due to heavy Treasury auctions, but there were also suggestions that moving into other asset classes may make sense with the Fed providing a backstop to the broker/dealer community. However, even with the 10-yr going to 4%, it remains very low both historically and in relation to the spread it normally trades at versus inflation.

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