Treasuries are still being buoyed by the conclusion of yesterday's Federal Open Market Committee meeting. In the stock market, the Dow is under moderate pressure in early trading, though the Nasdaq is still improving. The rise in Treasuries prices comes despite a strong reading on July Durable Goods Orders. The Commerce Department reported that orders rose by a stronger than expected, seasonally adjusted 3.3% in July and, excluding the transportation sector, the rise was even stronger at 3.7% the strongest reading ex-transportation in over two years. Analysts had predicted an overall increase of between 0.8% and 1.0%. June's report was also revised slightly higher from a 0.4% increase to a 0.5% increase. The monthly reports on Durable Goods Orders are historically volatile, but there is no denying that this report shows a broad-based increase in demand. This argues for a pick up in the pace of manufacturing which had been a weak segment in an otherwise robust economy. In other economic news, Existing Home Sales fell by 3.9% to a 5.41 million unit annualized rate. The pull-back does not suggest a significant change in the continuing strong demand for housing. The market had expected a sharper drop today from June's record high reading. But the market is still feeling the effects of the FOMC meeting. The Fed raised the fed funds rate by a quarter, as expected. They also raised the rarely used discount rate by a quarter. The hikes and the announcement of a neutral directional bias have given comfort to the market that the interest rate increases are likely over for the year. The relief rally has been helped by an improved technical outlook for bonds. The market got some additional support overnight as the dollar/yen exchange rate spiked up to 112.40 on speculation that the Japanese government was intervening to soften yen strength when a Japanese bank made a large buy currency transaction. But the rate quickly returned to lower levels when it was realized that the event was not the signal traders were waiting for. The market may be influenced by the $15 billion auction of 2-Year Treasury Notes. Most analysts think the auction may meet with weak demand due to the recent rate hike and that dealers will be the primary buyers. Wednesday, 8/24/99: Treasuries rose Tuesday on relief that the expected Fed rate hike had at last been made and on the hope that it will be the last tightening of the year. In late trading, the 30-Year Treasury Bond was up 22/32, lowering its yield to 5.93%; the 10-Year Note was up 16/32, lowering its yield to 5.82%; and the Dow was off 16.46 points to 11,283.30. The Federal Open Market Committee (FOMC) meeting concluded with the expected increase of .25% to the fed funds rate which now stands at 5.25%. Somewhat less expected was an increase to the discount rate of .25%, from 4.50% to 4.75%. This was the first time the Fed has increased the discount rate in over four years. The Federal Open Market Committee left their policy stance neutral. The fed funds rate is the rate banks charge one another for overnight loans. The discount rate is the rate banks must pay for loans from the Federal Reserve. The Fed announcement included the comment that the two hikes this year "should markedly diminish the risk of rising inflation going forward." But analysts note that the mostly symbolic increase to the discount rate was meant as a display of aggressiveness by the Fed -- a way of cautioning the markets against becoming overly optimistic. Analysts note that the first real test of the market's confidence in the belief that the Fed will not raise rates again this year will come a week from Friday when the employment report for August is released. The relief rally extended to the technology sector of the stock market as the Nasdaq rallied to a 1.21% increase. In contrast, the S&P 500 only rose 0.24%, while the Dow fell 0.15%. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||