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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: HairBall who wrote (17567)	6/16/1999 12:49:00 PM
From: Les H	Respond to of 99985

Benign CPI Eases Fears A weaker than expected CPI report has eased fears of an aggressive and imminent Fed tightening. Thirty-year bonds are up 20/32, yield 6.06%. Two-year notes are up 3/32, yield 5.59%. CPI for May was unchanged while the core rate (ex-food and energy) rose .1%. We were expecting a rise of .2% on both. On a year/year basis CPI is growing at 2.1% vs. 2.3% the previous month. Energy fell 1.3%, food rose .4%, housing rose .1%, medical care rose .2%, clothing prices fell .2%, tobacco fell 1.4% and personal computer prices fell 1.9%. The weaker then expected CPI does afford the Fed some breathing room. This better number has reduced the fear of an aggressive Fed tightening (50 basis points). The economy however is still growing at a faster pace than what the Fed desires. This leaves a tightening of 25 basis points a distinct possibility at the June 29/30 FOMC meeting. We should have a better idea of the Fed's leanings after Fed Chairman Greenspan's testimony before the Joint Economic Committee tomorrow. In other news, housing starts for May rose 6.3%. Expectations were for a rise of 3.5%. Single-family starts rose 12.8%, its strongest gain since 12/78. Multi-family starts fell 18.3%. Starts rose in all regions of the country. The strong starts number bodes well for strong durable good orders and strength in retail sales. The higher mortgage rates have the potential to slow the housing sector down. Industrial production for May rose .2% while capacity utilization was unchanged at 80.5. Both of the numbers were slightly lower than expected. Utility output fell 2.2%. This appears to be the component causing the softer than expected numbers. Manufacturing output rose .4% while mining output was up .1%. Later today we will get the release of the Fed's Beige Book. This will be the economic blueprint used at the upcoming FOMC meeting. Thursday will bring data on the trade balance, initial jobless claims and the Philadelphia Fed survey. Greenspan Speaks, the World Listens. As mentioned, the most important event will be Fed Chairman Greenspan's testimony on monetary policy tomorrow. The testimony is slated to begin at 10:00 EDT. Have a great day. bonds-online.com