Private source market briefing. Not intended for sale.
*********************
*Information in this letter is from sources considered reliable.
Accuracy/completeness not
guaranteed nor is the content to be deemed an offer/solicitation for a
sale/purchase of
securities.
Good Morning! It's Wednesday, August 29, 2001.
Treasury issues pared gains this morning after the Commerce Dept. said the
economy grew in the 2Q, reducing expectations that the Fed will cut rates
more than one more time this year to spur growth. Equities lifted on the
report as investors, hungry for an economic rebound, took this as a near
term positive signal, perhaps a knee jerk reaction in anticipation of
improving corporate profits.
The US economy grew in the 2Q at its slowest pace in more than eight years
as businesses reduced inventories and cut spending on new equipment. Gross
domestic product, the total of all goods and services produced in the Us
rose at a 0.2% annual rate, underpinned by consumer spending that increased
more than first estimated, the Commerce Dept. said. Analysts had expected
no growth in the quarter after a 0.7% rate of increase initially reported.
First quarter GDP rose at a 1.3% pace.
The need to replenish inventories government mailings of advance tax refund
checks and Federal Reserve interest rate cuts may boost demand and lead to
a pickup in the economy.
The economy will probably expand at a 1.7% rate in the current quarter and
2.8% in the 4Q, according to the Blue Chip Economic Indicators consensus
forecast release this month. The 2Q's pace of growth was the weakest since
a 0.1% rate of contraction in the 1Q of 1993.
Yesterday, Treasuries posted their biggest gains in three weeks after a
decline in consumer confidence was reported early in the morning. The
decline surprise analysts who had expected that tax cuts and lower energy
prices would be enough to ensure that consumer spending won't dry up. That
shook investors who have seen spending and housing as the few positive
points in the economy while businesses work off the excesses of
overinvestment and overcapacity built up in the late 1990's.
At the moment, and in an effort of make me look like a dope, the treasury
market has reversed its course and is now in positive territory just as I
complete the above portion of this comment. Drat.
The only reason being offered up is that the stock market, which I just got
through saying was up, is now down and it may be that money is flowing from
equities to treasuries. Maybe I should wait until noon to do this report.
Dang!
The long bond is currently up 6/32s at 5.390%, the ten-year note is up
5/32s at 4.812%, and the two-year is unchanged at 3.653%.
The stock market rose immediately after this morning's GDP report but it
looks like reality is setting in. While the data is a good omen for a
rebound in the economy, it isn't strong enough to tell us that the rebound
is here or has started. The only thing that is really going to get the
stock market turned around is a consecutive string of positive earnings
reports and we've yet to see that.
One asset manager pretty much summed up this morning's move; "The market
could bounce a little bit, but that is only a short term reaction to a good
number. People are going to forget about the number and reality is going to
set in: Stock prices are tied to earnings and if earnings aren't going to
be any good, investors won't buy stocks."
Gateway rose is early trade after the No. 2 direct seller of personal
computers said it plans to fire about 5,000 employees or 25% of its staff
worldwide, as part of an effort to save $300 million a year by halting
business in Asia and possibly Europe. GTW is up 0.18 at 8.78.
H&R Block Inc., the tax preparer said its loss narrowed to 17 cents a share
in the 1Q ended July 31 from 28 cents a year earlier as mortgage lending
grew. HRB is up 0.86 at 36.60.
At the moment, 7:15 am PDT, the Dow is down 55 at 10166, the Nasdaq is down
17 at 1847 and the S&P 500 is down 6 at 1155. |
