The Last Week in Review:

The March employment report helped to push the 10-year yield to nearly 5% Friday as the market priced in a slightly more aggressive Federal Reserve. 10-year Treasuries traded at 4.3% in mid-January as the 70 basis point rise is mimicked in fixed mortgage rates and helps to cool the strong economic momentum. The unemployment rate fell to a post-recession low of 4.654% as reduced labor availability provides the inflation risk the Fed has referred to. The Fed's estimate for Q4 unemployment both this year and next is 4.75% - 5% -- already in the rear view mirror. Payroll growth is showing solid broad based momentum as a slower pace is needed to slow or end the downward trend in unemployment.

The Fed funds futures market is advancing the odds for a June hike in the policy rate after the assumed May hike to 5%. The July contract currently prices in 48% probability for a June 29 hike to a 5.25% policy rate target. The August contract puts the probability at 94%. But the implied rates currently peak at 5.20% in October -- not fully pricing in a 5.25% policy target.

For most of last week the stock market rose despite continued strength in commodity prices and rising bond yields. But on Friday, the bullish tone for the week began to fade as the market focused on the growing inflationary pressures. The Dow managed to add 10 points for the week raising its year-to-date gain to 3.8%. The S&P rose less than 1 point, keeping its annual gain at 3.8%. The NASDAQ lost less than 1 point for the week, holding its year-to-date gain at 6.1%, while the Russell 2000 lost 9 points and is still up 12% for the year.

The Week Ahead:

After a rather quiet earnings pre-announcement season, the holiday shortened week starts off the Earnings Season Monday with Alcoa (AA) reporting results along with Genentech (DNA). Today Red Hat (RHAT) will host an analyst meeting and then on Wednesday morning Circuit City (CC) releases their results as does Advanced Micro Devices (AMD). Thursday before the market opens General Electric (GE) reports earnings. Morgan Stanley is hosting a three-day Global Automotive Conference that began on Monday in New York City. The three-day BIO 2006 Annual International Convention also began yesterday in Chicago.

Economic reports this week include the February Trade Balance followed by Weekly Crude Inventories on Wednesday, with the March Treasury Budget being reported later in the afternoon. On Thursday, numerous reports including February Business Inventories, March Import/Export Prices, Weekly Jobless Claims and March Retail Sales will be announced, followed by the release of the April Preliminary Michigan Sentiment shortly after the opening bell. Despite the market being closed on Friday, the March Capacity Utilization and March Industrial Production numbers are scheduled to be released. The bond market will close early on Thursday.

In summary: Investors need to focus on the price of oil as it approaches $70 and any escalation of the current Iranian political climate.