Bonds Retreat Before Growth News
By REUTERS
Filed at 9:20 a.m. ET
NEW YORK (Reuters) - Treasuries were on the defensive on Friday before a relentless tide of good economic news, though month-end position adjustments and an early closing meant prices could turn on a dime.
The latest upbeat report showed personal consumption climbed a real 0.6 percent in July, while tax cuts delivered a hefty 1.3 percent rise in real, inflation-adjusted, disposable incomes.
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Upward revisions to past months put spending on an even stronger track than first thought and supports those analysts tipping GDP growth of 5.0 percent or more this quarter.
All this spending might be generating some inflation with the core personal consumption expenditure deflator rising at an annual 1.4 percent in July from 1.2 percent the month before.
The core PCE index is the Federal Reserve's preferred measure of inflation and every time it rises the risk of deflation seems a little less.
Still, there is plenty of data yet to come.
The University of Michigan August final consumer sentiment index for August is due at 9:45 a.m. EDT. Economists generally expect the latter to dip to 90.5 compared with 90.9 in the final July report.
The National Association of Purchasing Management-Chicago releases its August index of manufacturing activity at 10 a.m. EDT. Economists look for a median reading of 55.5 compared with 55.9 in July.
At the same time Federal Reserve Chairman Alan Greenspan gives a speech on ``Monetary Policy and Uncertainty,'' a title that has dealers nervous.
``If I were a suspicious man, which I am, I'd think that title was deliberately designed to create uncertainty,'' said one trader at a primary dealer.
``Often these Jackson Hole speeches are pretty academic. But you never know; if he wants to say something to the bond market this is a good opportunity,'' he added. There has been media speculation Greenspan would make a bond-friendly speech aimed at tempering the recent huge spike in yields.
The market could do with the help. The benchmark 10-year note (US10YT-RR) was down 9/32 in price, sending its yield to 4.46 percent from 4.42 percent late on Thursday.
Five-year notes (US5YT-RR) fell 6/32 to yield 3.45 percent from 3.41 percent. The 30-year bond (US30YT-RR) lost 18/32 for a yield of 5.25 percent from 5.21 percent.
Two-year notes (US2YT-RR) dipped 2/32 giving a yield of 1.97 percent from 1.93 percent.
Traders noted there was some talk the Japanese had intervened in foreign exchange markets to prevent the yen from rising. This was considered supportive for bonds since the Bank of Japan tends to park any dollars bought in short-term Treasury and agency debt.
MORE CARS THAN PEOPLE
Analysts were still reeling from a prediction by Fordlate on Thursday that vehicle sales could hit an annual rate of 18.2 million to 18.7 million in August, and that after a big jump to 17.2 million in July.
If right, that is an astonishing performance and would imply another hefty gain in retail sales for the month. Combined with July's jump in sales, that points to a spectacular third quarter for consumption.
``Putting a number in line with Ford's estimates into our Q3 calculations, even with a correction lower in September, consumer spending should reach an annualized pace of around 7.0 percent,'' noted David Sloan, an analyst at 4Cast.
``That would be the strongest since Q1 of 1988,'' he added.
In turn that suggested GDP growth could easily top 5.0 percent this quarter from an already upwardly revised 3.1 percent in the second quarter. |
