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Happy 4th Birthday to Pensford

Pensford celebrates its 4 year anniversary today, thank you to everyone that has helped us reach this milestone. One more year and the Bank That Shall Not Be Named may be forced to recognize us as a real business.

Rates continued their benign trade last week. The 10yr Treasury started the week at 1.70% and finished at 1.66%. As we have reiterated for several weeks, we feel rates are rangebound with a bias towards lower yields. Last week’s GDP report revealed some interesting details, coming in at 2.5% following Q4’s incredibly weak 0.4%. Personal Consumption jumped noticeably from 1.8% in Q4 2012 to 3.2%. This surge is even more surprising considering the stunning 5.3% drop in disposable income (thank you sequester!).

The FOMC meets Tuesday and Wednesday and markets are primarily interested in any language regarding tapering of QE. For several weeks we have been directly contradicting the recent tapering rumors, which isn’t always the smartest move (“don’t fight the Fed”). But with last month’s weak employment data, as well as not yet having this Friday’s data, should result in less tapering discussion at this week’s FOMC meeting. Throw in the fact that Core PCE, the Fed’s preferred measurement for inflation, declined from 1.5% in Q4 to 1.3% in Q1 2013 and there is absolutely no concern about inflation right now. As our favorite BNP economist noted succinctly, “Underlying growth is still not strong enough to deliver inflationary pressures.”

Very busy week ahead, highlighted by the aforementioned FOMC meeting and Friday’s employment data. The consensus forecast is a gain of 145k jobs and the unemployment rate holding steady at 7.6%. The NFP forecast of 145k jobs is still well below the three month average of 212k and frankly, the bias is towards a weaker than expected gain, perhaps 120k or less. We also think there’s a real chance the UR actually ticks up to 7.7%. The ECB meets on Thursday and markets are hoping for a rate cut as the Eurozone continues to struggle.

The Pensford Letter – 4.29.13