Soft Landing?

The economic indicators released today raised serious questions about how rapidly the overall economy is slowing. Prior to today, the consensus view was that economic growth would continue to slow, but not by enough to seriously crimp profits. Along with this, the Fed would be done raising rates, and might even begin rate cuts by the middle of 2007.

Two reports in particular, the Philadelphia Fed's Economic Activity Index was a negative value, well below the concensus (of around 13). Also, the Conference Board's Index of Leading Economic Indicators fell for the fourth time in the last five months. Hardly an endorsement for future economic strength. Read about these developments in an article.


















This percieved future loss of economic strength affected interest rates. The benchmark 10-year government bond fell by 8 basis points. Furthermore, by the end of the day, this rate had fallen to its support level from mid March. I have provided a chart using StockCharts.com (click on the graph to enlarge it). Note that at its present level, the 10-year is only slightly overbought and that short-term resistance is not the 200-day moving average. (NOTE: divide the right-side scale by 10 with this interest rate)