Friday: 03/23/01
5:00 PM EST: Treasuries declined today as stocks
made gains. In late trading, the 30-Year Treasury Bond was down 16/32, raising
its yield to 5.30%; the 10-Year Note was down 12/32, raising ' its yield to
4.80%; the Dow was up 115.30 points to 9,504.78; and the Nasdaq was up 30.98
points to 1,928.68.
The story of the day was in the stock market. The high-volume dive in
yesterday's session lured buyers back into the market for a respectable bounce
by the end of trading. Today, the march forward continued though not without a
major fade at midday before rising again. The Dow gained 1.23% for the day,
though it posted a 3.2% decline for the week. The Nasdaq advanced 1.63% after
a 3.69% gain yesterday. The S&P 500 rose 1.99% today. Further volatility
is expected next week as new dips and rallies are tested.
Next week the most important indicators will likely be
Tuesday's release of the Conference Board's Consumer Confidence Index for
March and Friday's release of the University of Michigan's final reading on
consumer sentiment for the month. In February, Fed Chairman Alan Greenspan
testified that the mood of buyers, including business decision makers,
investors, and individual consumers, will determine the depth and extent of
the economic slowdown. And just this week the announcement accompanying the
end of the Fed meeting noted that, "Persistent pressures on profit
margins are restraining investment spending and, through declines in equity
wealth, consumption."
Both indicators are expected to show weakness next week.
The confidence index is expected to fall to 105.0 from 106.8 in February. The
sentiment index is expected to show a decline to 90.5 from the preliminary
reading earlier this month of 91.8. The weakness in the stock market is the
central reason for these projections.
On Monday the two home sale reports will be released and
both are expected to show a decline in February from January's levels. The
National Association of Realtors recently revised its monthly data over the
past year but it still reveals a general downtrend beginning last September
(except for spikes in November and January). New home sales fell almost 11% in
January but only after a sharp spike in December of almost 15%. These reports
will get a lot of attention because they will help to clarify whether low
mortgage rates are continuing to underpin the sector or if waning confidence
is hindering purchases.
On Tuesday, the report on durable goods orders for
February is expected to show a modest 0.5% gain after a 6.5% decline in
January. Also on Tuesday: representatives from Fannie Mae and Freddie Mac will
appear before the House Banking Subcommittee on Government Sponsored
Enterprises. It's possible this may have an effect on agency and mortgage
backed securities. Alan Greenspan and Treasury Secretary Paul O'Neill will
both be speaking at the National Association of Business Economics conference
in Washington.
On Wednesday, the Treasury's auction of $11 billion in
2-Year Notes may provide a stumbling block for bonds. On Thursday the final
report on the gross domestic product for the fourth quarter will be released.
Little change is expected from last month's version in which the annualized
growth rate for the quarter was measured at 1.1% with a chain weighted price
deflator reading of 1.9%. Also on Thursday: the Treasury will be conducting
another buyback of previously issued government securities.
On Friday the report on personal income and consumption
expenditures for February is expected to show continued growth in both
categories but at 0.4% and 0.3%, respectively, the increases would be less
than the 0.6% and 0.7% gains made in January.
The Chicago Purchasing Managers Index for March will also
be released on Friday. Analysts are looking for an increase to 44.0% from
February's 43.2% reading. But the level still indicates contraction in the
manufacturing sector of the highly industrialized region and suggests that the
monthly national report on the following Monday will post its eighth
consecutive sub-50% reading.
10:30 AM EST: Treasuries are down slightly as the
stock market is following through on the turnaround and upswing seen in late
trading yesterday. With no major economic releases scheduled, the performance
of the stock market will largely determine how the bond market does today.
The condition of the bond market is such that the stock
trade is even more important than usual. Treasuries are considered overbought,
that is; their prices are exceeding a level that could be determined by
quantifying the various market factors, even taking into consideration all of
the recent bond-friendly information.
Obviously, this is not a science or there would be no
market but many analysts are saying that on the basis of fundamentals, unless
new information were to determine otherwise, bonds have little room for
improvement at the present time.
Other technical factors can contradict the fundamentals
and move the market, however. The most explicit example of this is the support
the bond market received yesterday from the decline in stocks. Other markets
to watch include the currency and commodity markets.
The dollar has been strong lately in relation to the yen
and the euro. This attracts monies into dollar denominated investments like
U.S. Treasuries. But this morning the dollar is down against the yen. The
prime suspect for a downturn in the dollar against the yen at this time of
year is the process known as yen repatriation. The Japanese fiscal year ends
at the end of this month and institutional investors in that country often
convert many of their foreign holdings to ones that are yen-denominated as
they close out their books for the year.
Another factor holding back Treasuries today is the influx
of competing debt offerings coming to market. Almost $10 billion in corporate
issues are expected to price today.
But the stock market will hold the spotlight today. With
the accelerated decline the market has exhibited in the last couple of weeks,
traders are hoping that a bottom is at last at hand and that the course for
prices is now up. This turning process is not usually smooth, though, so
volatility is still expected to be high . . . .
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