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

To: Les H who wrote (48351)	4/27/2000 10:11:00 AM
From: Les H	Respond to of 99985

US TSYS FALL AFTER SURGE IN ECI SUGGESTS INFLATION REVIVAL 09:23 EDT 04/27 NEW YORK (MktNews) - Prices of U.S. Treasuries fell across the curve Thursday morning on news that employment costs rose more than expected in the first quarter, sparking fears of growing inflation, sources said. But prices erased most of their losses within a half hour as stocks collapsed after the data with S&P futures off 23 points while Nasdaq futures fell 68 points right after release. The yield on the 30-year bond was little changed at 5.93% as its downside was contained by the Treasury's buyback auctions planned for later Thursday morning. The 10-year note's yield moved from 6.12% to about 6.14% and the two-year note adjusted its yield from 6.50% to 6.51% on the reports. The Employment Cost Index jumped 1.4% in the first quarter, bringing its year-over-year rate to +4.3%. Benefits rose 2%, its greatest rise in a decade. A Bureau of Labor Statistics analyst said benefit gains were "broad-based" and that the anticipated rise in health care costs were clearly showing up in the current data. Year-over-year, benefits were up 5.0%. The 1.4% rise in overall compensation was its highest since the third quarter of 1989, when it also rose 1.4%. It was also reported that first-quarter GDP rose 5.4%, softer than many feared but held down by inventories, one strategist said. Real final sales surged 6.9% higher, versus a gain of 6.0% in the fourth quarter of 1999, showing the acceleration in demand that most strategists predicted. Also, the PCE price deflator index jumped 3.2% compared with +2.5% in the fourth quarter, a strategist said. "The numbers were very strong" from an inflationary standpoint, said Gemma Wright, senior strategist at Barclays Capital. "And coming on top of the Beckner story got people wondering" if the Fed would begin to act more aggressively to raise rates. MNI's Steven Beckner reported Thursday there are growing fears among Fed members that inflation is becoming more of a problem that could pose a threat to future economic strength. The story ran on the wire about 15 minutes before the ECI and GDP were released. Further, the GDP chain price index posted a 2.7% gain, its highest rate since 1Q 1997. Commerce said this was entirely due to higher energy prices and a federal pay raise that was treated as higher employee services costs. In other data Thursday morning, it was revealed that initial jobless claims rose 26,000 to 283,000 in the April 22 week, bouncing off its 27-year lows and overcoming strong holiday-related seasonal factor that typically boosts employment. At 9 a.m. EDT Thursday, the 30-year bond was trading at a yield of 5.912% compared with 5.942% at 3 p.m. Wednesday, while the 10-year note was at a yield of 6.113% versus 6.130% late Wednesday. US 1Q REAL GDP +5.4%, FINAL SALES +6.9% AS EXPECTED 08:31 EDT 04/27 --Real GDP Acceleration Reflects Consumption +8.3%, Pvt Invest. +17.3% --Inventories Cut 1.93 Pts From Growth; Private Invs +$31.1b --Commerce Assumed Higher Inventories, More Imports for March --GDP Chain Price Index +2.7% as Energy Jumps, Fed Pay is Hiked By Joseph Plocek WASHINGTON (MktNews) - The surprise in the U.S. 1Q GDP report was not that real growth was a strong 5.4%, the third consecutive quarter that growth has exceeded its average rate for this longest expansion, but that the Commerce Department estimated more inflation and less real growth than private analysts expected. Still, real final sales were up a huge 6.9%, an acceleration from the +6.0% of 4Q, showing the acceleration in demand that analysts expected. In fact, the median estimate in a Market News International poll of economists was for final sales to be up 6.9%. The difference between final sales and GDP is inventory investment, which cut 1.39 percentage points from growth. Private inventories were up $31.1 billion, less than their $66.7 billion gain in 4Q. The GDP chain price index posted a 2.7% gain, its highest rate since 1Q. 1997. Commerce said this was entirely due to higher energy prices and a federal pay raise that was treated as higher employee services costs. The PCE deflator came in at +3.2% after +2.5% in 4Q and +1.8% in 3Q. This is the inflation gauge that Federal Reserve Chairman Greenspan suggested best reflects the needs of the economy. Nondurable goods and services prices are rising -- the areas most affected by energy and the government's pay hike. Strength in 1Q GDP was seen in the 8.3% surge in consumption and in the 17.3% jump in private fixed investment. Consumption was boosted by a 26.6% advance in spending on durable goods, where individuals splurged on autos and furniture. Private investment was boosted by a 21.2% jump in nonresidential spending which was led by strong spending for information and computer equipment. Government spending cut 0.18 point from real GDP growth after adding 1.61 point in 4Q. The swing factor was federal defense spending, which fell 23.2% as both operations and capital spending declined. The Commerce Department assumed a large gain in imports and a small gain in exports, lower aircraft shipments, lower construction, and higher inventories for missing March data. Officials also noted that 1Q is the ninth quarter of "above-average" growth.