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

To: flatsville who wrote (32067)	11/1/1999 4:06:00 PM
From: Benkea	Read Replies (1) \| Respond to of 99985

FWIW: Order imbalances: biz.yahoo.com

To: flatsville who wrote (32067)	11/2/1999 2:35:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

VOLUMES DRY UP AS PLAYERS WIND DOWN AHEAD OF Y2K. ?Elisabeth Bertalanffy iinews.com Over-the-counter derivative desks across all asset classes already are being hit by a dramatic pull-back in trading volumes ahead of Y2K. ?It?s like a Christmas market already, and it?s only October,? said Ian Groome, a forex options marketing official at ABN Amro Bank in London. Activity has at least halved as banks are starting to close down books, and many will stop quoting prices between mid-December and mid-January. Several major banks in London are expected to close down books as early as mid-November, according to market officials. The ensuing dry-up in liquidity is causing volatilities to skyrocket. In the fixed-income market, swaps trading volumes already have shrunk to 30-40%, and options are almost non-existent, according to one fixed income trader in Frankfurt. Banks are closing out positions with January and December expiry dates, reducing risks and not taking on any new exposures. ?Even the major players, like J.P. Morgan, are no longer aggressively trading in the market,? one Frankfurt official said. Increasing illiquidity and volatility already is making it difficult for players to close out large positions, he added. ?The pain gets distributed to fewer and fewer players the more volatile it gets.? Besides Y2K fears, the liquidity dry-up is also driven by the absence of leverage players, such as hedge funds, following last year?s financial crises, the trader noted. Calls to J.P. Morgan were not returned. Though the impact in the forex markets hasn?t been as severe, officials said they are seeing 50% less trading than last year, and 25% less compared with previous months. Overall volumes have been lower this year because of the euro?s implementation, explained Groome, who declined to comment on ABN?s plans. Liquidity is low as most players already are hedged, which is why orders that do go through the market have an exaggerated impact, according to a New York forex official. It will dry up further, leading to widening bid-offer spreads and a number of erratic market moves as the millennium approaches, Groome predicted. The slowdown has hit the equity markets as well. ?Back offices have asked clients to keep activity to a minimum,? said Vanessa Gilbert-Gray, head of equity derivatives sales at Dresdner Kleinwort Benson in London. She added European OTC equity derivatives trading now is between one third and one half its usual volume. However, there is still demand for Y2K hedges from large corporates, which are buying short-dated equity index puts to get them through the turn of the year. Gilbert-Gray said DKB will continue quoting.

To: flatsville who wrote (32067)	11/4/1999 5:43:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

TALK FROM TRENCHES: HIGHER PRICES FORCE PLAYERS HANDS By Isobel Kennedy and Rob Ramos economeister.com NEW YORK (MktNews) - U.S. Treasuries are extending their gains on the week. The long bond hit a low yield of 6.10% Thursday after being at a two year high of 6.40% last week. But more importantly, the recent bond rally has shaken players out of their lethargy, forcing them to figure out what they really think about the direction of interest rates. Sources say the market is holding in this range because there are clearly players on all sides of the fence and decent volume is going through. The bulls say no inflation, no rate hikes, pent-up demand from real money accounts and Y2K concerns substantiate lower yields. The bears worry about strong growth in Europe and the U.S. and possible inflation. They are particularly concerned that the wealth effect from strong stocks will give consumers a fist full of money to spend during the holidays. Those straddling the fence want to see tomorrow's jobs data and then see what the Fed does on Nov 16 with its current tightening bias before making any decision. One very bullish salesman says the "unflinching strength shown in the treasury market since last week is nothing short of scary. But any correction may be smaller than expectations and accounts should take a chance at being mildly wrong and start to get long." His constructive stance is supported by: 1) a Nov 16 tightening would be the last until the middle of, or the end of, Q2; 2) there is tons of cash that needs to be reinvested before year-end; 3) larger central banks have recommitted to the market and smart real money has started to extend; 4) the market has completely discounted bad news; 5) lack of supply following the Nov refunding coupled with substantial amounts of cash required to be reinvested may generate a "liquidity crunch" ahead of year-end; 6) given retail's lack of participation in the Aug refunding and the subsequent rally shortly thereafter, "inactivity and indecision are influences that just cost too much". One noted bond bear says the recent rally was just a blip off the bottom because the market was very short. "But the Fed is tightening and the Street is easing and that cannot last. And if the conditions that caused the Fed, the ECB and the BOE to hike rates don't go away, there will be more rate hikes", he said. Others in this camp cite the following factors that will keep the economy strong and worries about inflation alive: 1) loosening of conditions in financial markets; 2) wealth effect from stock markets; 3) growth in Europe and a weaker dollar will help U.S. exports; 4) lower interest rates will cause housing and mortgage markets to re-ignite; 5) Y2K stock build up will help economy in Q4. One fence sitter had the following comment: "Interest rates rose steadily from Oct 1998 to Oct 1999, so why did the market choose last week to rally? Because a few hedge funds and a big foreign central bank bought?" He thinks it makes no sense for the bond to move from 6.40% to 6.125% so quickly without at least getting through tomorrow's jobs data and the Nov FOMC. But he, and others like him, say if the jobs data shows no inflation worry and if the Fed gets rid of its tightening bias -- even if they raise rates -- at the next meeting, then the market should rally into year-end amid Y2K worries. If, on the other hand, the Fed does not get rid of the tightening bias -- whether they raise rates or not -- all bets are off. Another player who has had been straddling the fence said she was hoping for another purging on the downside before getting involved. And if there is a pullback, for example on the jobs data, she thinks lots of players will use it as an excuse "to get on board because people don't want to be left behind when the train leaves the station." She also commented that even if the Fed raises rates at the next meeting, there is a feeling that the market has been down for 13 months and it is due for a turn anyway. Today's European rate rises were also seen as psychological positives for U.S. Treasuries as many think rate increases elsewhere are done for now. By the way, lots of treasury players think the Fed is using the tightening bias as a tool to keep the markets from rallying while their hands are tied due to Y2K concerns. If that is so, sources say, they are having only limited success. Stocks are back on the upswing and bonds are staging a nice rally. Others say, the Fed had better success when they just did what they had to do and did not "play around with the bias". As one old pro said, "In 1994 when they raised rates 300 bps, no one ever needed to ask what the bias was!" But some skeptics think that if the Fed is trying to be transparent with the bias announcement, they should go back to their old ways. "They were more transparent when they weren't trying to be transparent," one source says. Maybe they should take a few lessons from ECB President Duisenberg who made the following, very concise statements after the ECB raised rates 50 bps Thursday: 1) the rate hike should counter upward price risks; 2) a smaller increase may have caused uncertainty; 3) the growth in liquid M3 was particularly noteworthy; 4) the euro-dollar was not a factor in rate decision; 5) Y2K helped co-determine size of hike; 5) ECB deliberately changed message in July to prepare markets. Lastly, here is a very unique take on Y2K: One strategist fears what he is calling the "ATM Effect." He agrees that everyone in the world will take money out of the bank to have cash on hand for Y2K. But, he says, if they don't use or need the money for Y2K, they will end up spending it because no one will put the money back in the bank! Running the math, there are 139.4 million people in the U.S. labor force. If each one took $1,000 out of the bank for Y2K emergencies, that totals $139 billion -- that's lots of cash that could burn holes in lots of pockets! >>>My note: Half the people don't have that much money in the bank. 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.