US CREDIT OUTLOOK-Waiting for Greenspan's high-wire act
Mon May 19, 2003 04:53 PM ET
By Ros Krasny
CHICAGO, May 19 (Reuters) - A slow week for economic data releases leaves U.S. Treasuries dealers focused on what is likely to be a tricky balancing act on Wednesday by Federal Reserve Bank Chairman Alan Greenspan.
"Tuesday's trading will be mostly anticipation of Greenspan's comments on Wednesday," said John Shin, economist with Lehman Brothers.
"Greenspan will be forced to toe a very delicate line," Shin said. "He needs to address market concerns about inflation but in a way that is not alarmist. It's almost a lose-lose proposition."
Greenspan will testify on the U.S. economy before the Joint Economic Committee at 09:30 a.m. EDT (1330 GMT) on Wednesday, his first economy-focused comments since the May 6 FOMC meeting, when the central bank assessed that the balance of U.S. economic risks was weighted toward slowing inflation.
The Treasuries market has rallied virtually unchecked since then, factoring in the potential for a rate cut.
The Fed is "very close" to deciding on a rate cut, said William Quan, director of research for Mizuho Securities in Hoboken, NJ.
There is even a decent chance of an intermeeting rate move in advance of the June 24-25 FOMC meeting, Quan said.
Still, because the next rate cut was likely to be "the last traditional easing before a shift to quantitative monetary policy," its timing becomes even more opaque, he said.
In terms of possible policy initiatives, William Poole, St. Louis Federal Reserve Bank President, said on Monday the Fed "has monetary tools" to prevent sustained deflation.
Similar comments by other Fed officials recently have been interpreted to mean that the central bank was prepared to buy U.S. Treasuries if deflation became a reality. Frontrunning the Fed has helped drive this month's rally.
For Tuesday, economic releases will be mundane.
"After last week's breakneck pace, when it seems like we were getting new data every hour, Tuesday is just the lull before the storm," said Lehman's Shin.
Two weekly retail sales reports, the Redbook and the Bank of Tokyo-Mitsubishi/UBS Warburg, will be issued early Tuesday for the week ended May 17.
If form holds true, the reports will show soft growth in retailing as a weak jobs market and various weather problems trim shoppers' appetites.
Also due is the monthly budget balance for April. The U.S.. Treasury typically runs a surplus in April because of personal income tax receipts due on April 15.
A Reuters survey of economists, taken Friday, looked for an average surplus of $47 billion; estimates ranged from $35 billion to $53 billion. In April 2002, the Treasury ran a surplus of $67.2 billion.
Christopher Low, chief economist at FTN Financial, said in a report that at about $50 billion, the April surplus would be the smallest for that month since 1995.
Still, with interest rates at record lows, the potential for U.S. yields to be driven up by the ballooning budget deficit seems far away.
Also on the radar for Tuesday is the U.S. stock market. For weeks, financial traders have shaken their heads as both Treasury and equity prices have rallied. One sector, sources reasoned, was cruising for a bruising.
Stocks suffered the first blow Monday, handing back most of the month's gains. But Monday's decline at the long end of the yield curve suggested the Treasury rally might be petering out as well.
reuters.com |
