US TSY MKT VIEW: AUG RATE HIKE NEAR CERTAIN ON STRONG JOBS DATA
15:27 EDT 07/30
By Jill Bebar, MarketNews Intl
NEW YORK (MktNews) - Economists and strategists see a high probability of another Fed tightening in late August, particularly if next week's employment report and National Association of Purchasing Managers' survey show signs of strength.
"If next week's data is strong, it would clinch a rate hike on August 24," said Tony Crescenzi, senior market strategist at Miller Tabak Hirsch & Co.
Analysts said Friday's July employment report will be the main focus as investors keep a close watch on tight labor markets. Fed Chairman Alan Greenspan said in his recent Humphrey-Hawkins testimony, the Fed "needs to continue to assess whether the existing degree of pressure" in the labor markets "is consistent with sustaining our low inflation environment."
"The market is so sensitive to the Fed. The labor markets seem to be one of their trigger points right now," said Bill Hornbarger, fixed income strategist at A.G. Edwards.
Analysts said the average hourly earnings component would be carefully scrutinized due to Greenspan's concerns on wage inflation.
Employment is forecasted at 180,000 vs. 268,000 in June, according to a Market News survey.
Nevertheless, Kevin Flanagan, economist at Morgan Stanley Dean Witter, said given what the market knows now, most of the bad news has already been priced into the market. "The data should not come in too threatening. We should be able to hold the levels we are at now."
Flanagan expects the yield on the bellwether 30-year bond to trade in a range of 6.0% to 6.25%. The yield stood at 6.115% at 2:18 p.m. EDT.
Monday's NAPM report will also be significant, according to analysts. Many fear the report will show strength similar to the Chicago PMI, which rose slightly to 60.5 in July vs. 60.0 in June. Crescenzi said that if Chicago purchasers "is mirrored" in the NAPM report, it would equate to about a 4.0% gross domestic product reading for the third quarter, suggesting continued strength in the economy.
Supply from new corporate issuance may also pressure the market analysts said. A giant $5 billion Wal-Mart issuance in two-, five- and 10-year maturities was one of the deals expected to launch.
And Wednesday will be the U.S. Treasury's refunding announcement of fives, 10s and bonds. Steve Wood, senior economist at Banc of America Securities, forecasted a refunding total amount of $37 billion.
Analysts said market players will also eye U.S. car sales Monday and Tuesday. July sales are expected to be strong due to factory promotions and a strong economy. |
