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

To: James Strauss who wrote (23618)	8/23/1999 2:15:00 PM
From: Les H	Respond to of 99985

TALK FROM THE TRENCHES: FOMC -- BY ANY OTHER NAME? By Isobel Kennedy NEW YORK (MktNews) - It goes without saying that the entire focus Monday is Tuesday. Sources say customer trading activity in U.S. Treasuries is at a standstill. One senior salesman, making his customary morning calls, was told to "call back after the FOMC meeting." And we know things are really out of control when one of our reporter's mothers said today, "Well you know who speaks tomorrow." We know she's a gourmet cook and party planner, but the Fedwatching surprised us. We don't know about you, but we are pretty tired of the acronym FOMC. In fact, in the final draft of this piece, the word (or its substitute) appears 23 times! That makes pretty dull reading even for Wall Streeters. So, in order to make this more fun, we are going to use our spell check's suggestion of the word FONT instead of FOMC everytime FOMC should appear. We found it more neutral than the less flattering substitutes such as "FOES" and "FOGY" or others not included here. Sources say the market remains in limbo awaiting the FONT. While a 25 bps rate hike is generally expected, and a relief rally would probably follow, market players are still on alert for any minefields. If they raise the discount rate or change the bias to tightening it will spook the bond market, some say. One senior strategist questions how the FONT can move only 25 bps, issue a neutral bias and still keep the markets in check. He says the FONT has to "be aggressive without being aggressive" by using strong language that says another hike may be coming down the road. He says the Fed wants to avoid a repeat of the "one and done" thinking. Any announcement will surely be read under a microscope. Some think there might be some special wording in the announcement aimed at keeping the lid on any stock or bond rally. The fear is that any rally sparked by only a 25 bps hike could well wipe out the economic softening intended with the first hike. That is not the desired effect from tightening that the FONT is looking for. Another source says the FONT is between a rock and a hard place. If they change the discount rate, the bias or make a very hawkish statement, the markets might come unglued and sell off more sharply than the FONT intended. Economists wonder if there will be any message from the FONT about what indicators they are looking at. One economist says recent data show the U.S. economy has slowed to about 3%, which the Fed said it would tolerate. So after Tuesday, the focus should shift to employment reports which can be analysed for better clues about growth. September employment data is due Oct 8, after the Oct 5 FONT meeting. So the Street may be free of further tightening until the Nov 16 FONT, a tricky time considering Y2K concerns. Technicians say Treasuries should hold within a neutral zone today but the FONT meeting may provide a chance for the market to break out of it recent ranges: daily closes cheaper than the 5-day moving averages or weekly closes richer than 5-week moving averages. Issue 5-day MAs 5-week MAs 2Y 5.65% 5.58% 5Y 5.83% 5.73% 10Y 5.92% 5.83% 30Y 6.04% 5.97% Going into tomorrow's FONT, sources say the Street is largely positioned neutral to slightly long and retail is sharpening their pencils. Longs are said to be weighted in the intermediate sector followed by the back end. Most outstanding curve related plays involve flatteners which are likely to be unwound following tomorrow's announcement or bidding in Wednesday's 2Y auction, sources say. Players are still mindful of LATAM financial woes as evidenced in off-the-run U.S. Treasury paper trading wider on spread versus the currents. Out the curve, off-the-run long bonds continue to underperform which highlights the demand for liquidity, sources say. This situation, in addition to the upcoming FONT meeting, is curtailing any appetite to add to risk. In addition to Moody's warning Friday about Argentina's credit rating, here are a few things to watch out for: Updates on Ecuador's Brady bond payment due Aug 31; Brazil President to announce social measures to boost his sagging popularity; Rally this week in Brazil to protest current economic policies; tensions between outgoing Argentine President Menem and economic minister Fernandez; Mexico's July trade deficit and inflation figures. Over in Japan there will be a Y1.7 trillion 10Y sale tomorrow and, unluckily, it occurs before the FONT results. In the meantime, comments from Japanese officials on the strength of the yen are ongoing. And surely, these officials are waiting to see what the FONT does because it could push the dollar in one direction or another, sources say. Hopefully, after tomorrow, the word FONT will be less used. But don't count on it. After all, the Fed's blackout period will be over soon. And some sources think "Fedspeak" will be in full bloom shortly as FONT officials verbally backup any decision they make on Tuesday. On a lighter note...to the disappointed salesperson who was told to call back after the FONT, it could be worse. The account could have said call back after Labor Day! Heather Scott, Robert Ramos, Joe Plocek contributed. For the Dollar, the Devil's in the FOMC Details biz.yahoo.com My cable is out today since the cable guy is laying new cables out back. The noise level has gone down considerably without CNBC. NOTE: Talk From the Trenches is a daily compendium of chatter from Treasury trading rooms offered as a gauge of the mood in the financial markets. It is not hard, verified news.