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

To: Les H who wrote (32416)	11/5/1999 1:18:00 PM
From: pater tenebrarum	Respond to of 99985

Les, unless the call buying is based on some inside information, it would indicate that the stock should sell off post-news. regards, hb

To: Les H who wrote (32416)	11/5/1999 2:48:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

TALK FROM TRENCHES: JOBS HELP BUT SUPPLY, DATA, FED STILL LOOM By Isobel Kennedy NEW YORK (MktNews) - The U.S. Treasury market got a pleasant surprise Friday when October's employment report came in better than Street consensus. The report confirmed that the underlying economy slowed in the summer/fall but that it rebounded from the hurricane. Nonfarm Oct payrolls rose 310,000, a rebound from an upwardly revised +41,000 in Sept. The Aug-Sept-Oct average payroll gain is +160k, vs +227k in the prior 3 months, a clear slowing. Average hourly earnings were +0.1% for +3.6% year over year, also slower than in Sept. Going into the number, the market was divided as to the reaction the payroll report would generate. Some traders expected treasuries to trade up on a consensus jobs report and then fade later in the session as the Street tries to set up for next week's refundings. Other shops felt the market had come a long way in too short of time and were ready to sell into any strength. A group of raging bulls were looking to buy on a good number and buy on a bad number as well! Prices soared initially led by the speculative accounts. Later, as expected, mortgage convexity buying in intermediates kicked in. The 2Y note rallied to 5.66% after being quoted at 5.76% going into the number. The bond rallied to 6.009% after having been at 6.099% pre-release. Later, the market pulled back a bit. Central banks were modest sellers. The Street, however, was believed to be the primary seller. They think the market needs a supply concession heading into next week's supply or otherwise sticker shock will overwhelm the customer base. Perhaps they also want a bit of a cushion as the Nov 16 FOMC looms. There were also reports of a hedge fund liquidating the long bond contract near the session highs of 115-03. Sources say this fund was a heavy buyer during this week's range extension. By the way, keep in mind that cash treasuries reached the following two-year high yields last Monday, Oct 25: 2Y note got to 5.99% and the bond got to 6.42%. Both are intra-day levels. Now the question is where do we go from here? While there appears to be some raging bulls out there, market players say there are also plenty of bears and fence-sitters who will proceed with caution into next week's supply. In addition, there are other hurdles for the market and, perhaps, even the Fed. Next Wed, PPI is released before the 10Y auction. Thursday is a holiday. Friday is retail sales. The following week, the Fed meets on Tuesday, Nov 16 but the "third triplet of terror", CPI, does not come out until the following day. Fed fund futures rose sharply after the jobs data as the market priced out some the chances of a tightening at the Nov 16 FOMC. Earlier today, the Nov contract was reflecting about a 35% chance of a 25 bps hike in November. Last week the Nov contract had priced in as much as a 68% chance of a tightening in November. Some economists have begun to back track on their call for a Fed tightening on Nov 16. But others say the 0.1 pt drop in the Oct unemployment rate to 4.1% adds to the probability of a Fed firming. And one economist says if the Fed tightens on Nov 16, they will be focused on "forecasts of things to come, not the actual flow of recent favorable data." After the jobs report, a Merrill Lynch economist confirmed his firm continues to expect the Fed will tighten by 25 basis points on Nov. 16. But he added that their forecast then calls for the Fed to stay on hold going into the beginning of 2000 -- as long and growth and inflation remain low and the unemployment rate does not slip below 4.0%. It was reported that a U.K.-based primary dealer bank is calling for no hike in November but that the Fed will maintain its tightening bias. And that is "the kiss of death for lots of people because it will keep the noose around the market's neck and a blindfold over its eyes," one salesman said. Another primary dealer, say there will be no tightening in November but they look for two tightening in 2000. Speaking of the Fed, Dallas Fed Pres McTeer said (after the employment release) the recent inflation backup has been in energy prices but he worried about the Sept PPI. Next week's Oct inflation data will help him determine appropriate Fed policy. Of course how seriously can we take him? He also said Friday that the only necessary Y2K pre-caution was an extra six-pack of beer. Bet he ends up with the nickname "Beer McTeer" after that one! Over in Europe, European bonds retained the firm bid developed early in the week, and gained further momentum following the European rate hikes. This week some analysts say the movement in E-11 securities has been so fast and furious, it has made trading U.S. Treasuries look like playing in a sandbox." Since yesterday morning, E-11 5yr and 10yr sectors have outperformed UST's by 9-11 bps. Market players say it has been "madness" in the U.K. gilt market. The long cash gilt (6's 12/28) is trading up for the 9th consecutive day. Never, in the history of the U.S. Treasury market has the market moved up or down for 10 consecutive days. Analysts say U.K. gilts may do it. Since Oct 25, the price of UKT 6's 12/28 is 14.35 points higher, the yield falling 74.3 bps. to 4.038% from 4.781%. JAPANESE "DELAYED" BUBBLE TROUBLE: The BOJ has temporarily agreed to buy JGBs from the MOF's Trust Fund Bureau via reverse repo agreements. Analysts say the agreement is aimed to provide liquidity to the Yucho postal savings system in anticipation of dwindling funds. These analysts project a huge net outflow of some 31 trillion yen from the system over the next two years beginning Apr 2000. At that time, investors are expected to begin terminating 10yr high-interest fixed-term accounts opened at the end of Japan's "bubble" period of inflated stock and land prices in the early 1990's. Back in the USA, another employment Friday is almost over. Have a good weekend. --Joe Plocek, Rob Ramos and Kim Rellahan 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.