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Strategies & Market Trends : MDA - Market Direction Analysis

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Nov 26 4:00 PM EST

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To: bobby beara who wrote (14286)	5/18/1999 1:15:00 PM
From: Les H	Read Replies (2) of 99985

Bonds Firm Ahead of FOMC Meeting Favorable housing starts data is giving bonds a firm tone prior to the outcome of the FOMC meeting. Thirty-year bonds are up 12/32, yield 5.87%. Two-year notes are unchanged, yield 5.27%. Housing starts for April fell 10.1% to 1.574 million units, its lowest level since 5/98. Expectations were for a decline of .7%. March was revised from down 1.3% to down .1%. This is the first sign of slowing in the housing market. The decline may be related to higher interest rates. The National Association of Home Builders believes the decline is related to lack of skilled labor and a shortage of building materials. This data is very volatile. Consequently, it may be too early to say the strength in housing is over. Bonds, nonetheless, reacted favorably to the data. We are anxiously awaiting the result of today's FOMC meeting. Bewitching hour is 11:15 A.M. pacific. Fears are that the Fed will change its policy bias from one of neutrality to one of tightening. Some of the issues the Fed will be considering are the strength in the economy, strong consumer demand and the uptick in CPI. They will also consider positive data on hourly earnings and unit labor costs, and strong productivity. The outcome of the meeting is to close to call. Watch for any statement that may accompany the announcement. Elsewhere, the Organization for Economic Cooperation & Development (OECD) said the growth in the euro zone would likely slow to 2.1% in 1999 from 2.9% in 1998. In recession sick Japan, the Bank of Japan kept interest rates unchanged at .15%, as expected. No economic data tomorrow. The Treasury will announce the details of its two-year note auction tomorrow. Thursday will bring data on the trade deficit and the Philadelphia Fed index. Have a great day. bonds-online.com

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