Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Les H who wrote (24266)	8/31/1999 5:28:00 PM
From: Les H	Respond to of 99985

TALK FROM TRENCHES: DODGE CHICAGO BULLET, STEP ON NAPM BOMB By Isobel Kennedy NEW YORK (MktNews) - What a day! Treasurys got whacked overnight when the dollar nosedived against the yen. They had just clawed their way back in the anticipation of month-end index fund buying when a raft of selling knocked them back down again. But they got their final kick in the teeth when the NAPM report came in stronger than expected. Did we say NAPM? Yes, that was due out tomorrow but through a series of accidents it came out early. But the numbers are correct and they show that manufacturing is doing better and that inflation may be on the rise. NAPM employment rose to 53.4 for August from 49.6 in July, suggesting a big number in payrolls on Friday. Prices paid jumped to 59.8 from 54.7 July. The report showed manufacturing rising for a seventh straight month with 12 of 20 industries doing better and inventories down. Only electronic components are in short supply. Metals, corn and paper goods are rising in price. The latest overall reading is consistent with a 3.5% real GDP growth. Moreover, production is growing fastest in home-related goods, suggesting recent rises in interest rates are not stopping consumption. Naturally, this report heightened the worries for Friday's jobs report. Market News' survey of economists -- conducted ahead of the NAPM release -- pegged non-farm payroll +215,000, with average hourly earnings up 0.3% and the jobless rate at 4.2% NAPM's jump in prices followed a disappointing rise in the Chicago PMI prices paid index from 59.8 to 63.8 in August. Now people are paying closer attention to oil. It has been holding over $21 a barrel as Saudi Arabia, Venezuela and Mexico say they are sticking to their production quotas. The broad-based CRB commodity index also remains sharply higher, with grains contributing to higher prices. At any rate, it was all too much for a market that was already flip-flopping from last week's idea that there would definitely not be any more rate hikes this year. Yesterday one source summed it up by saying "Last week the market fought the Fed. But since last Thursday, the Fed is fighting back." Another technician said Tuesday that "the bears feel the ball is back in their court." Selling was seen across the curve and the yield on the 30Y long bond rose to 6.10% and its price fell over one point from the session high. Selling was seen from hedge funds, speculative accounts, day traders and dealers who were setting up new shorts. 5Y/30y steepening trades were also being put on. And selling came from swappers and corporations who are facing a deluge of corporate paper in September. Of course the dollar continues to be a negative. The dollar was trading around Y111 last night when an official from Japan's ruling Liberal Democratic Party said there would be no intervention at Y110 but there might be some on a sudden plunge to Y105. Wham the dollar skidded to Y109 where it still remains. None of the deputy finance ministers attending the G-7 deputy meeting in Berlin on Tuesday had any public comment, even though they discussed the yen privately. Foreign exchange sources say they're seeing a lot of repatriating of yen going into Japan's Sept 30 half-year end. Hedge funds were also selling dollars today. Some Treasury sources speculate that hedge funds might be unwinding yen-carry trades then dumping out the dollars and Treasurys on the other side of that trade. Guess that could explain some of the hedge fund selling in Treasuries today. Needless to say, all of this selling threw a monkey wrench into the idea that month-end index fund buying would support prices. Over the last two years, during months that included a refunding, the market has gained on seven of the eight occasions by an average of half a point. The only time of the past eight where the market fell was in August 1997 due to a strong Chicago index. Well, the market dodged the Chicago bullet but was felled by the NAPM landmine. By the way, this morning Japan issued Y1 trillion (about $9B) 6Y bonds and the auction went off better than expected. On Thursday, they will issue 30Y bonds for the first time ever. Amount will be Y200 billion or about $1.8B using Y109. While today's events may have caused some Treasury players to bite the bullet, things could always be worse. New York's Mayor Gulliani is on jury duty. Luckily for us, he was assigned to a tenant/landlord hot water dispute instead of a Wall Street white collar crime case!! --contributors: Joe Plocek, Jill Bebar, Dennis Pettit, Carlos Torres 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.

To: Les H who wrote (24266)	8/31/1999 5:30:00 PM
From: Les H	Respond to of 99985

US DEBT OPTIONS: VOL STAYS FIRM AS TECHNICIANS DEBATE DIRECTION CHICAGO (MktNews) - Implied volatility on Treasury bond options were firm again Tuesday as traders continue to debate market direction and remain wary of the possible bearish implications in Friday's August non-farm payroll report. Dec T-bond futures attempted to recoup some of Monday's losses after the Chicago Purchasing Managers' survey reported its overall index lower than expected at 56.1. However, the prices paid component at 63.8, was the highest reading since June 1995, helped cap the rally. As a result, prices on the benchmark 30-year bond rotated to a session high of 114 21/32, after the Chicago data. After giving up some of those gains, prices were hit further after a surprise release of the National Association of Purchasing Managers' survey showed the nation's manufacturing sector continues strong. The NAPM index registered a 54.2 in August vs. 53.4 in July. Floor traders said post-NAPM dealer participation was aggressive to the sell side as the contract slipped to a session low of 113 19/32. The contract was well supported at 113 17/32, which is a 75% Fibonacci retracement from 116-12/32, the one month high established last Wednesday to the low of 112-19, the 22-1/2 month low set August 13. Floor traders remain somewhat divided but reflect a slightly bearish bias especially ahead of Friday's August payroll report. Some analysts said the robust employment component of the NAPM, which was 53.4, may be bearish for Friday's jobs report. Although the Dec T-bonds still remain rangebound, fundamentals point to lower prices as the economy remains robust, one trader said. Several other technicians point to the 110-00 level in the near-term for the benchmark contract. Flows in T-bond options mimicked the indecision felt among the trading community as option flows were not directional Tuesday. Pit sources reported heavy dealer-to dealer flows in the Dec T-bond 120 calls and also in the at-the-money Dec T-bond 114 and 112 puts. Amid the third session of drastic price declines in the benchmark 30-year bond, implied volatility on both Oct and Dec T-bond options ended firm tone. The highly gamma sensitive Oct volatility tweaked lower to end at 9.41% while Dec was unchanged at 8.97%. The Chicago Board of Trade estimated Tuesday's volume in T-bond futures at 415,000, down from Monday's actual of 439,465. Bond options were estimated at 122,000, compared with 131,701 traded during the previous session.--Alyce Andres