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To: Les H who wrote (28161)	10/1/1999 10:39:00 PM
From: Les H	Respond to of 99985

TALK FROM TRENCHES: NAPALM HITS US TSYS; TANKAN, FOMC NEXT By Isobel Kennedy NEW YORK (MktNews) - U.S. Treasuries have given back all of Thursday's gains and then some Friday. Prices started the session under pressure due to a rout in the European bond markets and a very strong National Association of Purchasing Manager's report finished the job. European bonds got clobbered Friday morning when a variety of events sent up red flags about inflation and European rate hikes. U.S. Treasuries fell in sympathy. According to a seasonally adjusted index from the Chartered Institute of Purchasing and Supply (CIPS) released Friday, activity in the U.K. manufacturing sector in September grew at its fastest rate in 22 months. And average input prices rose strongly for a second month running in September, with the index rising to 54.6 from 52.9 in August. The Reuters euro-zone PMI index also posted a strong gain Friday, signalling nascent inflationary pressure. The index, based on data from five countries, rose to 54.7 in September from 53.2 in August. European Central Bank chief economist Issing Friday said "downward risk (to price stability) had disappeared around May. Afterwards, we had a balanced situation and now - in the whole (price) environment with rising oil prices - the risks lie to the other side." Draw the shades! On top of that comment, there were unsubstantiated rumors that the trading staff of a large German bank were told not to be long German bunds. Turn out the lights! ECB President Duisenberg raised more red flags during NY time when he told participants at a Wall Street Journal Forum that he saw further upward pressures on consumer prices. Say goodnight! Enter the NAPM! One salesman said the NAPM numbers were "very strong and very scary." The prices paid component of the survey was particularly worrisome as 14 of 20 industries reported higher prices. 42% of the respondents for the September survey say they are feeling price pressures as opposed to only 32% in August and 23% in July. The index now stands at 67.6, its fifth month above the key 50% level. The report said no commodities were in short supply, but rising prices stemmed from metals, chemicals, containers, gas, paper, plastic and wood pulp. It said the industrial sector is returning to pre-Asia crisis levels. Well, they don't call NAPM "NA-PALM" for nothing, sources say. Even before the release was out, players were saying that if the number was not friendly prices would remain under pressure until next Friday's employment report. On the other hand, there are still bulls out there who use the dips to buy. Are they on the right track or are they being duped by the theory that "a bargain is something you cannot use at a price you cannot resist." So, traders are braced for what could be a rocky road next week. Of course whether the course will be up or down is unknown. Japan's Tankan is released Monday, the U.S. Fed meets Tuesday. The Bank of England begins it two day meeting on Wednesday and the European Central Bank meets Thursday. There are mixed reports about Japan's Tankan and expectations run from moderate to healthy to strong. Earlier this week, most U.S. players were pooh-poohing any Fed rate hike. But now all bets may be off. Friday morning, NY Fed McDonough said it was uncertain what the Fed would decide next week. "I don't know what we are going to do." He did say, however, that whatever the decision, it will be "vehemently opposed to inflation." He also said officials must decide how much of the past ease to "leave in" a reference to the last 25 bps of ease that is left from last year's 75 bps global meltdown easing. But a more comforting comment said U.S. firms still lack pricing power. By the way, now that NAPM is out, the FOMC should have most of the leading data that they need. They will not get a good report on September payrolls until Thursday, Oct 7, well after the FOMC but they may have some partial data by Oct 4. The threat of a rate hike from the ECB seems to be the major concern because few expect a rate hike from the U.K. But then again, the market is still smarting from the shocking rate hike the U.K. delivered on Sept 8. As far as Japan is concerned there is still talk about their monetary policy stance. Vice Finance Minister for International Affairs said he expects the G-7 message to be gradually understood by the markets and others. What are all these people talking about? If they have a message to send why don't they just spit it out. By the way, IMF Director Camdessus said Thursday that coordinated, unsterilized foreign exchange intervention should be used only rarely, and it is hoped that Japan's economic and financial situation can be "normalized" without any kind of intervention. Is he siding with the BOJ in its current battle with the Ministry of Finance? Remember, Mr. Greenspan seemed to side with BOJ Gov Hayami last week when he said that the BOJ's massive influx of liquidity has not sparked any lending and that should quiet some of the calls for Japan to boost liquidity further with more easing. Other tidbits: Mr. Greenspan said Thursday night he thought Y2K would be a non-event; There was very loose talk in the foreign exchange markets that the G-7 made a secret agreement to defend Y103 on the $US; Japan said the danger from yesterday's nuclear accident had passed. 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 (28161)	10/1/1999 10:41:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

US TSY MKT OUTLOOK: EXPECTATION SHIFTS TO OCT. FED TIGHTENING By Jill Bebar NEW YORK (MktNews) - The market's expectation has shifted to largely anticipating a 25 basis point Federal Reserve rate increase next week, and some analysts are saying the market would be disappointed if the Fed does not act. Sentiment shifted Friday after unexpectedly bearish economic data, including new home sales and sharp increases in the prices paid components of both the National Association of Purchasing Management and Chicago purchasers surveys, analysts said. "It is becoming more and more obvious the U.S. economy is not slowing down. The Fed cannot afford to do nothing now and run the risk of being locked in a 5 1/4% funds rate through year-end," said James Kochan, bond market strategist at Robert Baird & Co in Milwaukee. Zane Brown, director of fixed income at Lord Abbett & Co., agreed. "It would be favorable to tighten and get it out of the way instead of shifting the bias and painting a dark cloud hanging over the markets throughout the balance of the year," he said. On Aug. 24 the Fed increased short-term interest rates 25 basis points and kept a neutral bias. On the international front, Jim Glassman, economist at Chase Securities, said there is a dramatic shift in thinking, with many more market participants looking for the European Central Bank to raise rates on Thursday. This follows a round of strong data and hawkish comments from ECB officials this week. Analysts said participants expressed caution on Friday's September employment report. Kochan said there was risk to the upside since the August report was more friendly with non-farm payrolls at 124,000. A median forecast in a Market News survey of economists calls for non-farm payrolls to increase to 225,000. The unemployment rate is expected it remain steady at 4.2%. Analysts said there were rumors Monday's Bank of Japan's third-quarter Tankan survey will be on the strong side. Glassman said the survey was crucial to the currency markets because signs of economic strength in Japan have bolstered the yen vs. the dollar recently. Glassman said bond market players will remain on edge about higher interest rates until there are more definitive signs of slowing in the consumer sector. Next week's calendar also includes August housing completions Monday, August leading indicators and nonmanufacturing NAPM Tuesday, August factory orders Wednesday, September Challenger layoffs, September chain store sales and August consumer credit Thursday and August wholesale inventories and September ECRI and CIBCR inflation indexes Friday. >>>Looks like no guarantee that bonds will sustain any rally >>>if the Fed decides to hold rates at current level.