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

To: Giordano Bruno who wrote (25970)	9/15/1999 6:18:00 PM
From: Les H	Respond to of 99985

TALK FROM THE TRENCHES: TRADERS WHIPSAWED AFTER CPI By Isobel Kennedy NEW YORK (MktNews) - U.S. Treasury traders earlier took a roller coaster ride Wednesday, with prices soaring a point in the long end after the slightly better-than-expected consumer price index. But then traders got whipsawed as prices turned back, plunging one point. The uptrade was attributed mainly to professional short covering and the Street was believed to have left many of their shorts in place after the number. The downtrade was caused by widespread rumors that a major hedge fund was unwinding yen carry trades. As they bought back yen they had borrowed they sold out dollars, U.S. Treasury bond futures, back month europeanly futures and U.S. equities. Much of Wednesday's price action occurred in relatively light volume, sources say. And that is part of the problem. It appears that many professional and retail money accounts are now refusing to play the game. After the recent employment and producer prices releases, the market spiked so high, so quickly, buyers had to pay top dollar to get in. And when the market did not see follow-through buying they made no money. The same situation occurred Wednesday with CPI. But after getting burned on the two previous occasions players boycotted the CPI rally and refused to chase the market higher. Even before the selloff, traders said today's CPI report failed to give the market clear direction and they were disappointed the market was unable to break out of its recent range. And it is no wonder. Economists themselves are split about the what CPI will mean to the Fed. On one hand, some think the subdued report, with evidence of restrained inflation in hand, will make them comfortable and they will not raise rates on Oct. 5. The other camp says CPI is lagging data and that the leading data - yesterday's surging retail sales -- suggests an overheating economy and more rate hikes. Interestingly, one market strategist notes medical costs rose a sharp 0.4% in Aug CPI and this will feed into the employment cost index estimates for Q3 and affect the Nov 16 FOMC deliberations. Of course the ECI is said to be one of Mr. Greenspan's pet indicators. The strategist says that payrolls, PPI and now CPI have "given short-term relief" to the markets but "slower economic growth is still needed" to sustain a market rally. The weak dollar is another big concern for players in the U.S. assets markets. And maybe it is of growing concern to Japan too. Overnight, Japan's Finance Minister Miyazawa flip-flopped and said he will as other G-7 countries to help in weakening the yen when they meet on September 25 in Washington, D.C. Japanese press reports say Japan is looking for an accord similar to the one agreed to by the G7 in 1995 that called for an "orderly reversal" of yen strength. At the time, the dollar was trading around Y79. They quoted a Finance Ministry source as saying that if the economy slips back into recession because of the strong yen, "it would not be desirable for the U.S. economy." Sister market supply is also weighing on Treasury prices and some of today's weakness began when Ontario announced that it would tap the debt market for $1 billion 30Y later this week. These jumbo deals often hurt Treasury prices because the deals generate rate lock, hedge and swap selling. They also lure investment money away from the Treasury market. Fears of global economic growth and the threat that inflation will eventually come out of hibernation worries fixed income traders around the world. Over in Europe, bond traders are still smarting from last week's surprise U.K. rate hike. They also call yesterday's strong U.S. retail sales report a dark cloud. One London trader noted that global economic growth is the current focus, and the market tone is becoming very inflation sensitive. "The last five years of low inflation may be behind us, it could be a whole new ball game." Indeed, Bank of Italy Governor Antonio Fazio said Wednesday that there is growing evidence of an economic pick-up in Italy and Europe as a whole, and that the rate of improvement is strengthening. And some analysts calculate that around 40% of the euro zone would now be better suited for a rate hike but Germany and Italy account for around 50% of the euro zone, and they do not need a rate increase. And the German Kiel economic research institute said in its latest forecast on Euroland economy that the European Central Bank will raise its main refinancing rate by 80 basis points to 3.30% by the end of 2000. While "it cannot be excluded" that the ECB will hike rates this year, the Kiel Institute expects the ECB to only raise rates next year after it has made sure that the EMU economic expansion has "clearly taken hold." An initial rate hike is expected early next year. Japan's Economic Planning Agency is expected to release a slightly more optimistic economic assessment this Friday. But sources say in this report they will note that private consumption has not recovered enough leaving the economy trapped "in a severe situation." The consumer in both Japan and U.S. account for about 60% of their GDP. After Tuesday's strong U.S. retail sales numbers, analysts say the U.S. consumer won't stop spending and the Japanese consumer won't start! Are the spending habits of the two largest economies of the world balancing each other out and keeping inflation in check? Back in the good old US of A, Hurricane Floyd has yet to touch land but it is still a factor in the credit markets. There is ongoing talk that insurance companies may have to sell U.S. assets to pay for any damage like they did in 1992 for Hurricane Andrew. Here's some comic relief from today's Washington Post: members of President Clinton's party who were bungee jumping in New Zealand included economic policy advisor Gene Sperling. If he likes that sort of thing, why not just become a U.S. Treasury trader. --Robert Ramos, Kim Rellahan and Joe Plocek contributed. 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: Giordano Bruno who wrote (25970)	9/15/1999 6:27:00 PM
From: pater tenebrarum	Respond to of 99985

Jim, interestingly, Prechter also makes a convincing case for socio-cultural attitudes playing a big role in how manias develop and end. he has numerous examples that show that many things in our lives follow the wave principle. of course, a change in social and political attitudes could potentially be preceded by a drastic change in market behavior. i read somewhere today that some people said w/regard to Clinton's various scandals "i vote Dow Jones, not Paula Jones." it is a well documented fact that during manias fraud and manipulation run rampant. usually as soon as a mania ends, the uncovering of countless cases of of illegal or reprehensible activities commences. perhaps the arrest of Martin Armstrong was but a first glimpse of what to expect in the not-too-distant future. regards, hb