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

To: Les H who wrote (28360)	10/4/1999 5:34:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 99985

not to forget the 'unlesses'

To: Les H who wrote (28360)	10/4/1999 5:43:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

TALK FROM TRENCHES: WHICH CENTRAL BANK WILL BLINK FIRST? By Isobel Kennedy & Joseph Plocek NEW YORK (MktNews) - Well the Japan Tankan survey is out of the way but the U.S. Treasury market, like Japan, is not out of the woods yet. And there is a lot more wood to chop -- the FOMC Tuesday, the Bank of England meeting Wednesday and Thursday, the European Central Bank meeting Thursday and the U.S. employment report Friday. The headline Tankan data showed an improvement to -22 in July from -37 in June -- the best survey in 21 months. But many analysts say the need for companies to cut costs and delay investment still leaves the government as the main engine of growth. These analysts say the report could reflect strengthening business sentiment but not a strengthening real economy. Many warn that most Japanese companies are using Y115 as their benchmark for earnings, meaning the current Y106 level will definitely hurt since the yen shows no signs of weakening. BOJ's Murayama said Monday it's hard to tell if the yen's impact on the economy is reflected in the latest Tankan. The BOJ's board will present their assessment of the Tankan in next month's economic report and they will surely worry about the slippage in capital spending plans. But BOJ officials have until their meeting on Oct 13 to decide what to do. Surely, the market will get its fill of Tokyo Tease by then. Few analysts expect a rate hike out of the Bank of England but players in Europe and the U.S. think an ECB hike of 25 bps is a done deal. One trader said that of the three monetary meetings this week the ECB offers the greatest risk of a rate rise. He thinks they have to play catch up after the recent rate hikes from the U.S and U.K. Until the Fed speaks at 2:15 p.m. EDT Tuesday, Treasuries may remain in a malaise. But for sure, more and more economists are muttering the T-word -- that's right tightening. About half of the Street's economists are looking for a tightening bias to result from tomorrow's Fed meeting. And even some of those who were fairly sure that the Federal Reserve was on hold for the distant future are now hedging their bets. But there is lots and lots of confusion out there, so if you feel that way you are not alone. In the tightening camp, sources cite a strong U.S. economy that is only slowing in dribs and drabs and the edging up of inflation. But isn't inflation supposed to be a lagging indicator that peaks only after the economy peaks? So is the economy slowing enough to ward off inflation or has inflation yet to rear its really ugly head? Will the Fed catch it in time or will they make the mistake of tightening too much late in the cycle? On the side for no tightening are those who think that even though Asia has shown some recovery there are still problems out there, making global growth a problem the Fed still has to worry about. Y2K is also a concern. And even though Mr. Greenspan said it should be a non-event, the Fed has certainly put some unusual procedures in place to keep any problems at bay. Lastly, as much as Mr. Greenspan warns about overvalued stocks, he really can't afford to push the equity markets out of bed. If the Fed moves to a tightening bias on Tuesday, the 2Y note could back up 5 to 10 bps in yield. If the Fed does nothing tomorrow -- no hike, no bias change -- the 2Y note could rally 5 to 10 bps, sources say. But the relief rally would be limited because most believe a rate hike is still in the cards going forward so they would sell into any rally. Whatever happens, sources say that Friday's shocking NAPM jolted the market out of its complacency and back to the realization that inflation may not be a "thing of the past." Regardless of what the Fed does tomorrow, reaction may be muted as players pause to take their next cue from the ECB meeting on Thursday and U.S. jobs data on Friday. Greenspan and Company will not have the full employment report on Tuesday, and there is some good news in the history. Analysts have over-estimated U.S. September nonfarm payrolls in each of the last six years, by an average of 82,000 jobs. The median estimate in our survey is +220,000, vs. +124,000 in August. An "average over-estimate" would put payrolls at a non-threatening +138,000. Economists say if this week's U.S. data are weak, they can blame September's Hurricane Floyd and suggest this may be a reason for the Fed to stand pat. "After all, in November (Nov 16 is the next FOMC after Tuesday) the Fed will have two more sets of monthly data," one economist says. Of course, there are some bulls out there who think that the market could begin its long-awaited rally if the Fed moves to a tightening bias tomorrow. Players in this camp think the Fed probably only needs to tighten 25 bps more to take back all of the 75 bps of easing during the Asian crisis. And any good trader knows you can't wait until the last tightening takes place to get involved. Other than the Fed the only other chatter in the market was about the Wall Street Journal story that said Japanese accounts have lowered their holdings of pure U.S. Treasuries to 10-20% from 50% three years ago. Instead, it appears they are buying higher yielding U.S. agencies that come with an implicit U.S. government guarantee. But the plot thickens. According to the article, the Japanese regulators force accounts to "mark to market" pure U.S Treasuries but not U.S. agencies. So are the savvy Japanese looking for the value or the loophole? Officials in Washington declare that the Friday fire at the U.S. Commerce Department contaminated only the basement, so look for the timely release of data this week. The fire had no affect on the press room at the Labor Department, which will release the September employment report Friday on schedule. 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.