TALK FROM TRENCHES: DISSECTING JOBS REPORT; HOME SALES LOST
By Isobel Kennedy and Rob Ramos
NEW YORK (MktNews) - U.S. Treasuries opened unchanged Thursday, dipped lower on shockingly strong new home sales figures, rebounded on short covering and are currently seeping lower due to weakness in the euro.
It's sounds quite active, but let's not get carried away. Volume is a meager $35 billion and the long bond has been in a 13/32 range all day!
In reality, most players are just doing some position squaring ahead of tomorrow's jobs report and others are resting up for the event that could blow the market right out of its socks.
While it is old news, late Tuesday comments from Federal Reserve Board Governor Meyer are still ringing in people's ears -- if the unemployment rate falls below 4.1% it could force the Fed to tighten.
Average hourly earnings will also be closely watched and the current estimate is for a rise of 0.3%. The median for non-farm payrolls is +200,000 vs +310,000 in Oct.
One strategist was warning people today of potential distortions in the November payroll data. Specifically in retail and construction jobs.
The retail job component could have a suppressing influence on payrolls simply because seasonal factors "expect" a job gain of 336,000 in the sector. If less than 336,000 actual retail jobs are added, a decline is reported in this sector. The risk, of course, is retailers will be unable to find workers to fill their seasonal job needs and retail jobs will artificially lower the overall payroll number.
While retail jobs could fall, construction jobs may gain, the result of warmer-than-seasonal weather, which may have translated into less layoffs than normal. With seasonal factors "expecting" a loss of 133,000 construction workers during Nov, a lesser tally will boost the data.
Back in the treasury market, players were surprised that prices did not get hit harder on the huge jump in new home sales. Professional short covering propped up prices when they dipped, sources said. In addition, a major European national central bank was believed to be a buyer of 5s and 10s several times today.
By the way, there is speculation the same account has been buying in the agency market recently. More interestingly, this account was a steady, consistent buyer of treasuries over a 5-day period in late October when yields were at their 1999 highs. At the time, that buying sparked a short covering rally that took bonds back to 6.00% from 6.40%, sources say.
Late yesterday, the U.S. ABC/Money Weekly Consumer Comfort Index showed solid numbers for consumer comfort, the national economy, and personal finances. The buying climate index came in at the highest level since Dec 6, 1998.
For those worried about the stock market wealth affect take a look at these numbers. On Dec 3, 1998, the Dow Jones Industrial Average was at 8,879.68 level and yesterday it closed at 10,998.39. On Dec 3, 1998 the NASDAQ was at 1,954.33 versus yesterday's close of 3,353.71. Wow!
And that leads us back to the Fed. There is now talk in the market that if the Fed plans to raise rates at the Feb 1-2 meeting, which is the first one in 2000, does that mean they would change the bias to tightening from neutral at the December 21 meeting? Since that has been their pattern, they may have to do that, sources say. And while a tightening bias that close to Y2K might shake the market up, some say it would be better than an actual rate hike and that the market would "understand" the Fed"s modus operandi. That's debatable!
By the way, the Money Marketeer's dinner last night had NY Fed Executive Vice President Peter Fischer as its featured speaker. As the head of the Fed's Open Market Operations he was speaking about the Fed's contingency plans for Y2K and the repo market.
But during the Q&A, one clearly frustrated salesman went on and on about how his customers think the Federal Reserve is behind the curve on monetary policy because they keep seeing strong economic growth figures and not enough action from the Fed.
Finally, our reporter who attended the event said Fischer genteely interrupted the poor, agonized soul and said,"You are asking me to comment on monetary policy? And the answer is no." That got a roar out of everyone in the audience except the poor guy who genuinely seemed to want to be comforted.
Over in Europe, the euro hit a new lifetime low of $1.0010. Sources say there have been stop-loss sell orders out there all along and it is possible one was tripped to cause the currency to hit that new low. They also think it is only a matter of time before more selling knocks it down to parity.
Lastly, Japan will chair the G-7 meeting in Tokyo on Jan 22. Keep in mind, there has been much talk that they intend to ask the group for help in keeping the yen down.
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. |
