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To: lorne who wrote (32320)	4/22/1999 8:38:00 PM
From: Alex	Respond to of 116786

Inflation to rebound????????? Return of US inflation to burn Treasuries Thursday's unemployment report highlights the fact that the US labour market is still extremely tight. And it underpins InterMoney's expectation that inflation will creep up this year, eroding the Treasury market. News out Thursday, that new claimants for unemployment benefits numbered 314,000 in the week ending April 17, points to the continued strength of the US labour market. The report received more than the usual amount of attention because the survey was taken during the same week that a key monthly employment survey was done. Financial markets are watching all the data on the US employment picture because of the important implications a tight labour market can have for inflation. If workers are in short supply, employers have to lure them with bigger salaries. And higher employment costs are then passed on to consumers in the price of products. The new claimants figure had been below 300,000 for the past 10 weeks, the longest period over which unemployment claims had remained so low in 25 years. And in fact, that statistic understates how tight the US labour market really is. If one looks at new claimants compared to the size of the overall workforce, which continues to grow, unemployment hasn't been this low since at least 1950 -- as far back as InterMoney's database goes. Still, inflation remains benign. That's largely thanks to the economic slowdown outside the US. Weak demand overseas has had foreign producers slashing prices on their goods. That makes it hard for domestic producers to pass the higher cost of wages onto consumers, who could just as easily choose less expensive imports. But as the global economy rebounds, that could all change. Commodity prices, driven to 20-year lows during the nadir of last year's economic crisis, are already starting to rebound. The price of a barrel of crude oil recently brushed the $18 mark, after averaging about $13 last year. And as economies first in Asia, then in Latin America, rebound in the coming months, global demand will return, driving prices up. InterMoney expects inflation to creep up to a rate of between 2.1% and 2.3% in the second half of the year. In comparison, inflation rose last year was 1.7%. That's not good news for fixed income investors who loathe nothing more than inflation. As prices in shops go up, the value of their fixed returns diminish. And with the global economy recovering, investors will no longer need to pour into the safe haven of Treasuries. The recent strength of both US and international stock markets only makes the situation worse for bonds. In the first quarter alone, the Dow Jones Industrial Average handed investors a return of more than 6%. During the same time, the Salomon Smith Barney index of Treasuries lost 1.5% of its value. And inflation hadn't even started to creep up during the first quarter. When it becomes clear in coming months that America's benign inflation picture isn't going to stay so rosy, investors will increasingly snub Treasuries. InterMoney sees the yield on the benchmark 30-year bond -- which moves in the opposite direction of the price -- rising to 5.94% in the next few months, from 5.52% at Wednesday's close. I.D.E.A. : Thu Apr 22 19:37:11 1999 [GMT] wallstreetcity.com