EFFECTIVE 5:00 PM EASTERN TIME: 11/10/97 /_________________\
KEY INDICATOR CURRENT CHANGE FROM LAST YIELD |6-Mth CD :5.71% *|
--------------- --------- ---------------- ------ |11th COFI:4.941% |
3-month T-Bill: 5.19 - up 4 basis pnts-5.33% |6Mo-LIBOR:5.805% |
10 Year T-Note: 101 22/34 - up 2/32 -5.89% |1Yr TBill:5.35% *|
Long Bond.....: 99 24/32 - up 5/32 -6.14% |3Yr TBill:5.73% *|
Dow Jones.....: 7552.59 - down 28.73 |5Yr TBill:5.78% *|
FHLMC 60 day..: 7.34% - down from 7.41% (11/07) |10YrTBill:5.90% *|
FNMA 60 day...: 7.34% - from 7.34% (11/07) |30YrTBond:6.22% *|
|PRIME - 8.500%|
Todays Interest Rate/Loan Fee Pricing Trend: |DISCOUNT - 5.000%|
*** UP/STABLE *** |FED FUNDS- 5.50 |
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* Wkly Average ending 10/31
With the stock market opening higher (Dow +45, even the Brazilian Bovespa is up 4.2% this morning), no economic releases on today's calendar, and a holiday tomorrow; the market is not surprisingly looking ahead to more eventful times.
This is a fairly light week in the economic report department with the most meaningful events being Wednesday's Federal Open Market Committee (FOMC) meeting; Thursday's release of 3rd quarter productivity, Initial Jobless Claims and a scheduled speech by Alan Greenspan on Asian Markets; and Friday's releases on the October Producer Price Index (PPI) and Retail Sales. (See the calendar for details).
The FOMC meeting on Wednesday is the subject of much talk but little disagreement. Most economists and analysts do not expect the Fed to make a move at this meeting. The policy outlook gets more interesting by December and beyond. Friday's employment report clearly upped the risk of a December tightening, though there is still a set of requirements which must be filled for that to happen. If at all, a first quarter 98 tightening is more likely, though the risk of a move in December is still significant.
Worried that the Fed should be raising interest rates amid an overheating economy, but can't due to upheaval in world-wide stock markets? Even though traders say the Fed's hands are tied, and despite what some see as an overheating economy that could otherwise use a dose of rate tightening, bond traders are upbeat.
Indeed, Treasury prices held up nicely on Friday. In late trading, the bellwether 30-year bond was down 4/32, raising its yield slightly to 6.153%. The benchmark bond's yield has fallen to its lowest levels since February 1996, amid low inflation and a sidelined Fed.
In more-ordinary times, Friday's surprisingly strong employment report would have sparked both a sell-off in bonds and widespread expectations that the Federal Reserve would boost interest rates this week.
The Labor Department reported that payrolls rose 284,000 in October, higher than the 215,000 or fewer expected by economists, while the unemployment rate fell to a lower-than-expected 4.7%, the lowest rate in 24 years. The Labor Department also reported average hourly earnings rose $0.06 to $12.41.
The figures underscore the economy's strength. Indeed, some traders speculate that the benchmark 30-year Treasury bond would have fallen as much as two points on the news, over fears that higher inflation is around the corner, had stock market weakness not sparked interest in Treasury securities.
Times are far from ordinary, however. The Fed is unlikely to raise rates when it convenes to discuss interest-rate policy on Wednesday, in part because such a rate hike would deal a serious blow to the ability of Asian economies, and world financial markets, to regain their tenuous footing. Because the currencies of many of the struggling Asian economies are pegged to the dollar, an interest-rate hike would level severe pressure on them by increasing world-wide demand for the dollar.
At the same time, the Fed, under Chairman Alan Greenspan's guidance, has done a good job in recent years of foreshadowing rate increases. This time around, few market participants expect the Fed to make a move.
The Fed can afford to wait until early next year to raise rates, if it feels it's necessary, because the delay is unlikely to make a major impact on the economy.
Meanwhile, if the stock market continues to weaken, consumer spending could fall, as individuals rein in their expenditures, helping the economy to cool. If anything, the biggest danger is that the U.S. economy could slow at a faster rate than is expected, perhaps eliciting deflation, a phenomenon that helps bond prices....
DATE ECONOMIC REPORT FORECAST ACTUAL
---- ----------------------------- -------- ------
Mon 10/27 Existing Home Sales (Sept) 4.27 Mln 4.32Mln(+0.2%)
Tue 10/28 Employment Cost Index (3rd qtr) +0.8% +0.8%
10/28 Consumer Confidence (Oct) 127.0 123.3
10/28 $15.0 billion 2-Yr Note Auction - - - - - - - - - -
Wed 10/29 Greenspan testimomy Joint Economic Committee
10/29 Durable Goods Orders (Sept) -0.9% -0.6%
10/29 Fed Beige Book (Oct) - - - - - - - - - -
10/29 $11.0 billion 5-Yr Note Auction - - - - - - - - - -
Thu 10/30 Initial Jobless Claims (10/25) 310,000 297,000
10/30 New Home Sales (Sept) 810,000 800K (-0.2%)
Fri 10/31 Advanced 3rd Qtr GDP +3.4% +3.5%
10/31 GDP Price Deflator +2.0% +1.4%
10/31 Chicago Purchasing Managers 60.0 56.0
10/31 Consumer Sentiment (UofM) 105.2 105.2