>
>Friday's Opening View
>
>
>"Yes, but…" could well be the caveat for the economic data released
>yesterday. The U.S. economy grew better than the initially-reported Gross
>Domestic Product (GDP) of a plus 2.4 percent annual rate. The GDP was
>restated at a plus 3.1 percent. Analysts were looking for this first
>revision to hit a plus 2.9 percent. The first quarter grew at a 1.4
>percent rate.
>
>Looking a little deeper into the GDP numbers, consumer spending (as
>measured by personal consumption expenditures) rose at by a revised 3.8-
>percent annual rate versus the 2.0-percent rise during the first quarter
>and the 3.3-percent rise initially reported. Spending on durable goods
>(items meant to last three years or longer) rose by 24.1 percent following
>a 2.0-percent decline in the first quarter. Spending on non-durable goods
>rose by 1.1 percent.
>
>The ever so critical business spending (non-residential investment)
>increased 8.0 percent following a 4.4-percent decline during the first
>quarter. Within that category, spending on computers and equipment
>increased by 8.2 percent, while spending on structures rose by 7.1
>percent. Businesses inventories fell a revised $20.9 billion on the heel
>of a gain of $4.8 billion in the first quarter. The falloff shaved 0.87
>percentage point off GDP growth. Second-quarter inventories had previously
>been estimated as dropping $17.9 billion.
>
>The report showed exports fell by 1.2 percent while imports rose by 7.9
>percent. The Federal government kicked it into high gear, with a spending
>increase of 25.5 percent This dwarfed the 0.7-percent rise during the
>first quarter. The 25.5-percent surge was the largest quarterly climb
>since 1967.
>
>So far all well and good, "yes but" the second quarter PCE Price Index was
>revised to a plus 0.7-percent rate from the initially estimated plus 0.9-
>percent rate. This would tend to validate the Fed' concerns over dis-
>inflation (see treasurys below) and seemed to be the reason that the
>market shrugged off the apparent improvement in the GDP headline number.
>
>U.S. initial jobless claims rose by a less-than-expected 3,000 to 394,000
>for the week ending August 23. Analysts were looking for a rise of 9,000.
>The four-week average, which smoothes out weekly fluctuations, rose by 500
>to 396,250. It was the fourth consecutive week in which the four-week
>average has remained below 400,000. So far all well and good, "yes but",
>continuing claims for the week ending August 16 (recall that this figure
>always lags by one week) continues to rise, increasing by 26,000 to 3,657,
>000 in the latest report. Continuing claims have risen for seven out of
>the past 10 weeks and you have to figure that the weeks that should a
>decline, may have reflected displaced workers who simply fell off the back
>end and through the cracks. We will have a better handle on this picture
>next Friday when the monthly non-farm payroll numbers are released.
>
>The Chicago Fed National Activity Index (CFNAI) came in at a minus 0.20 in
>July, a marginal improvement from June's reading of minus 0.32, as
>weakness in employment-related data continues to weigh on the index. The
>three-month moving average index (CFNAI-MA3), also improved, moving up to
>minus 0.29 in July from minus 0.59 in June. So far the glass is half full,
>"yes but", despite the improvement, the monthly and three-month figures
>remain below zero and point to an economy that is expanding below its
>historical growth rate.
>
>Equity option activity on the CBOE yesterday had 206,314 put contracts
>trade compared to 418,387 call contracts. The resultant 0.493 single-
>session put/call ratio has encouraged the 21-day moving average lower to
>0.638. The CBOE Market Volatility Index (VIX – 19.93) slid by 2.02 percent
>and the Nasdaq-100 Trust Volatility Index (QQV – 25.55) dropped 2.03
>percent. The CBOE Nasdaq Market Volatility Index (VXN – 30.31) ticked
>higher by 0.87 percent
>
>Looking at yesterday's internals, volume on the NYSE came in at an
>"average" 1.16 billion shares. The advance/decline ratio improved
>handsomely to 2.31 (2,222 advancing issues to 961 declining issues). The
>191 new annual highs outpaced the three new annual lows. Volume on the
>Nasdaq now has to be classified as a "strong" 898 million shares thanks to
>a tendency leaning toward weak volumes pulling the volume moving averages
>lower. The advance/decline ratio moved higher to 1.54 (1,881 advancing
>issues to 1,220 declining issues). New annual highs came in at 258 while
>new annual lows made it to 12.
>I've had numerous inquiries as to what constitutes strong or substantial
>volume. In the future, I'll use the 10-day and 20-day moving averages as
>the area of demarcation. Above both trendlines = "strong," within these
>trendlines = "average," and beneath both trendlines = "anemic." (This
>little snippet will remain in this space ad infinitum as a reminder).
>
>As for today, before the market open July Personal Income is expected to
>have risen by 0.2 percent, moderating slightly from June's 0.3-percent
>rise. The companion report, July Personal Spending, is expected to show
>that the American consumer opened up that wallet a little wider to the
>tune of plus 0.7 percent compared to Junes 0.3-percent rise.
>
>At 9:45 a.m. the Final August University of Michigan Consumer Sentiment
>index is seen at 90.5, holding around the mid-August reading of 90.2 and
>the final July reported 90.9.
>
>A key and potentially market moving report hits at 10:00 a.m. in the form
>of the August Chicago Purchasing Manager's Index. It is seen slipping
>slightly to 54.0 from July's 55.9, but still holding at a healthy level.
>This report is said to preview the national Institute for Supply Managers
>(ISM) manufacturing report due out this coming Tuesday on the well being
>of the manufacturing sector.
>
>Finally and surely not without fanfare, Fed Reserve Chairman Greenspan
>will appear at 10:00 to speak on monetary policy and uncertainty at the
>Federal Reserve Bank of Kansas City Economic Symposium. I am sure his
>comments will be weighed with care, especially by bond traders who have
>seen his comments add volatility to their market of late.
>
>In futures trading, the December contracts on the SPX (1002.84, plus 0.61
>percent), DJIA (9374.21, plus 0.43 percent), and the NDX (1332.33, plus
>1.02 percent) are currently trading beneath their respective fair value
>numbers on light volume ahead of early release of economic data. At this
>point in time session lows and highs: SP/U3 (1000.30/1003.70), DJ/U3
>(9353.00/9382.00), and ND/U3 (1328.00/1334.00).
>
>Overseas markets seem hesitant to get too far out on the limb as we
>prepare to enter the weekend. Currently seven of the 15 markets that we
>track are positive with a cumulative average return on the group standing
>at a plus 0.113 percent. The Frankfurt FAX seems determined on closing the
>week above the key 3,500 level while the FTSE 100 index is struggling to
>get back into positive territory. The Nikkei managed to skate through a
>barrage of economic data overnight to post a positive close. On the week
>the index added 62.30 points or 0.6 percent.
>
>The U.S. Dollar Index (DX/Y – 98.83) lost two cents yesterday failing to
>close above the 99 level despite posting its fifth consecutive intraday
>move above that level. The U.S. dollar could advance only versus the euro,
>peso and the franc yesterday. The U.S. dollar has lower versus most of our
>bench markets with the exception of the real and the Canadian dollar. We
>are nor receiving tick information from ILX Systems on the peso this
>morning:
>Currency/ Last/ Change
>euro ($/EC)/ 1.0935/ 0.00630
>British pound ($/BP)/ 1.5785/ 0.00250
>Japanese yen (Y/$)/ 116.4551/ 0.00630
>Brazilian real (R/$)/ 2.9650/ -0.00057
>Mexican peso (P/$)/ 11.0400/ n/a
>Canadian dollar (CD/$)/ 1.3963/ -0.00060
>Swiss Franc (F/$)/ 1.1053/ 0.19800
>
>The December future contract on gold (GC/Z3 – 371.60) settled lower by
>$2.50 per ounce on the regular trading session yesterday, sacrificing some
>of the prior session's gains. At no time, however, did the contract pose a
>threat of testing the $370 level. The contract is higher by $3.20 to
>374.80 in early trading today. London spot was at $371.60/372.35
>
>The September future contract on the 30-year bond (US/U3 – 107'19) surged
>by 1'10 in yesterday's session thanks to the inflation (or the lack of)
>data out of the GDP figure. The PCE Price Index was revised lower to plus
>0.7 from the initially estimated plus 0.9 percent. This indicates that dis-
>inflationary pressures persist in the economy, substantiating the Federal
>Reserve's concerns on the issue. The threat of dis-inflation assures that
>the Fed will hold interest rates at historic lows (keeping treasury yields
>low and, as such, prices of the fixed incomes higher). Aside from holding
>the line on interest rates, the Fed also has the option to become a buyer
>of treasuries (although this seems a last resort measure). The yields on
>the 2-year and 10-year notes stood at 1.932 percent and 4.417 percent,
>respectively, dropping as the notes rose. The 2-30 year yield spread stood
>328 basis points. Early trading in London has the group mixed as if a deer
>caught in the headlights of the Greenspan-mobile. Trading officially
>closes in New York one hour earlier today at 2:00 p.m. ET. :
>2-year note was at 100-3/32 unchanged to yield 1.94 percent
>5-year note was at 99-7/32 down 3/32 to yield 3.42 percent
>10-year note was at 98-16/32 up 2/32 to yield 4.44 percent
>30-year bond was at 102-5/32 down 1/32 to yield 5.22 percent
>The yield curve, as measured by the 2-30-year yield spread, stood at basis
>points.
>
>The October contract on sweet crude oil (CL/V3 – 31.50) added by 29 cents
>yesterday. September gasoline is holding above the $1.00 level, closing at
>1.0514 per gallon yesterday, as the peak driving weekend is here. Another
>explosion yesterday rocked a North Iraqi pipe line which feeds into the
>Iraq-Turkey main feed line. This calls into question the ability of Iraq
>becoming a major producer any time some or even in the extended horizon.
>Under the "for what it's worth" heading, the OPEC basket of seven major
>crude types averaged $28.80 per barrel yesterday. This marks the seventh
>consecutive day that the price had been above the upper band of the
>group's $22 to 28 per barrel range. You must be saying, "Al It seems that
>oil have been higher for much longer than that!" My response would be "Why
>yes it has." It had reached 12 consecutive days above the $28.00 level
>before moving back beneath $28.00 on August 19. This I am afraid reset the
>clock. Pretty tricky huh! In the mean time U.S. inventories of crude
>remain at historic low levels as we must now start to build inventories of
>heating oil for the rapidly approaching winter months. The contract is
>higher by 14-cents in early trade this morning.
>
>Today's Economic Calendar :
>8:30 a.m.: July Personal Income (seen as plus 0.2 percent, last plus 0.3
>percent).
>8:30 a.m.: July Personal Spending (seen as plus 0.7 percent, last plus 0.3
>percent).
>9:45 a.m.: August Final University of Michigan Consumer Sentiment (seen at
>90.5, mid-August 90.2; end-July 90.9).
>10:00 a.m.: August Chicago Purchasing Manager's Index (last 55.9).
>10:00 a.m.: Fed Reserve Chairman Greenspan to speak on monetary policy and
>uncertainty at the Federal Reserve Bank of Kansas City Economic Symposium
>in Jackson Hole, Wyoming.
>
>
>
>- Al Schwartz (aschwartz@sir-inc.com)
[Harry: Despite what this article says, I would expect the focus will still be on the positives. The holiday effect should carry the COMPX to test the recent high at 1813. After that I would expect another pull back to test the 0.32 and 0.68 Fib re-tracement levels. There is no real news till the employment reports on the first Friday of the new month.]
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