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OPTIMA RESEARCH INVESTMENT, INC.
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Monday 7/6/98 -- Americas Comment -- The US markets today will
focus on (1) any overnight events in the Asian and Russian
financial markets, (2) today's US June non-manufacturing index from
the NAPM, (3) the US Treasury market which faces a comparatively
quiet calendar this week after last Thursday's bullish June
unemployment report and last Thursday's May 19 FOMC minutes which
showed that the Fed retained its bias toward tightening and that
two FOMC members voted to immediately tighten monetary policy, (4)
the dollar which sold off moderately last Friday on reported
comments by Prime Minister Hashimoto in which he seemed to endorse
permanent tax cuts, and (5) the CRB index which closed moderately
lower last Thursday on weak silver prices.
This week's US economic calendar is mildly busy. Tuesday
brings the weekly retailer sales surveys. Wednesday brings the May
wholesale trade and May consumer credit reports. Thursday brings
June same-store retail chain sales reports. Friday brings the June
PPI report.
Overseas, the Japanese markets will continue to focus on the
bridge bank plan and the chances for a permanent tax cut. The
German markets will keep an eye on Tuesday's unemployment report
for signs of strength in domestic demand. The British markets are
keeping an eye on the Wed/Thur MPC meeting with the market
discounting the chances for another 25 bp rate hike at about one-
third.
US June auto sales are off to a strong start -- Two of the
three major US automakers released their June sales data last week
and those reports pointed to an annual sales rate of 14.1 million
units. That is much stronger than expectations for a 13.6 million
unit pace and little changed from May's 14.2 million unit rate.
Final auto sales figures will be known today when Ford is expected
to release its June sales report. Still, the strength seen in June
auto sales to-date suggests that the June retail sales report will
be on the strong side once again.
NAPM's service sector index likely to remain very strong --
The financial markets today will also keep an eye on the NAPM's
June non-manufacturing activity index. In May, the index edged
+1.0 point to 64.0% where it pointed to stronger growth in the non-
manufacturing economy. Today's report should serve as a reminder
to investors that the vast majority of the sectors of the US
economy continue to hum right along as manufacturing only accounts
for 20% of GDP.
US June unemployment report suggests labor market is cooling
-- June non-farm payrolls climbed by +205,000 workers, in line with
expectations for a +210,000 worker increase. May non-farm payrolls
were revised a bit stronger by 13,000 (to +309,000 workers from
+296,000) and April payrolls were revised higher by 18,000 (to
+320,000 from +302,000). Through the first 6 months of the year,
payroll growth averaged +243,000 workers per month.
As expected, the bulk of the strength in the June unemployment
report came from the service-sector where payrolls climbed by
+215,000 workers, adding to May's +347,000 gain. Retail payrolls
climbed by +53,000 workers, while the narrow services category
(business and health care payrolls) posted a +136,000 worker gain.
Government payrolls fell by -33,000 workers, led by a -20,000
worker decline in local education jobs as the seasonal adjustments
still have difficulty correcting for the end of the school year.
Goods-producing payrolls fell by -10,000 workers, adding to
May's -38,000 worker slide. Manufacturing payrolls fell by -29,000
workers, marking the 3rd straight decline in factory employment.
The June drop was fueled partly by a -9,400 worker decline in auto
industry payrolls. The BLS reported last month that 3,400 payrolls
would be cut as a direct result of the GM strikes. However, it was
reported Thursday that an additional 6,000 jobs were lost in the
auto industry as an indirect result of the GM walkouts.
Construction payrolls climbed by +20,000 workers, more than
reversing May's -13,000 worker decline.
Elsewhere in the establishment survey, the average workweek
slipped by -0.1 hour in June to 34.6 hours. That left its just 0.2
hours below Jan's 10-3/4 year peak of 34.8 hours. The
manufacturing workweek was unchanged at 41.8 hours, where it stands
mildly below Dec's all-time high of 42.2 hours. Factory overtime
last month was flat at 4.6 hours. Average hourly earnings in June
edged +0.1% higher to $12.74. That marked the smallest percentage
point increase in 3-1/2 years. On a year-on-year basis, average
hourly earnings climbed by +4.1%, down from May's +4.3% (yr-yr)
gain and mildly below April's revised peak of +4.4%. That +4.4%
(yr-yr) peak in April matched the Feb 1989 14-2/3 year high.
In the household survey, the civilian unemployment rate
climbed by +0.2 points to 4.5% which showed a weaker labor market
than market expectations for an unchanged rate at 4.3%. At 4.5%,
the June unemployment rate was 0.2 points above May's 28-1/3 year
low of 4.3%.
The +0.2 point jump in the civilian rate was tied to an
unexpected -244,000 worker decline in civilian employment.
Civilian unemployment jumped by +327,000 workers, leaving a +83,000
worker increase in the labor force. That left the labor force
participation rate unchanged at 67.0% where it remains mildly below
Jan's and Feb's all-time high of 67.3%. The drop in civilian
employment pushed the employment-to-population ratio down -0.2
points to 64.0% where it stands mildly below the all-time high of
64.2% which was established in Jan and matched in Feb, April, and
May.
Last Thursday's June unemployment report pointed to a slight
cooling in the labor market. That is in line with expectations
given the slowdown in the manufacturing sector tied to the Asian
crisis and the effort among producers to curb inventory growth.
Evidence of a cooling labor market abounded in the
unemployment report. The +205,000 worker gain in non-farm payrolls
was in line with expectations but was moderately weaker than the
average monthly increase of +243,000 workers seen through the first
6 months of the year. Moreover, manufacturing payrolls have now
declined for 3 straight months and will likely drop for a 4th
straight month in July if the GM strikes are not settled within a
week of the July 4th holiday. The -0.1 hour decline in the average
workweek is also evidence of slower growth in the tight US labor
market, as is the deceleration in average hourly earnings to +0.1%,
the smallest increase in 3-1/2 years.
Evidence of a cooling labor market also showed up in the
household survey. The +0.2 point increase in the civilian
unemployment rate points to a bit more slack in an extremely tight
labor market. Moreover, the cooling in the establishment
components were confirmed by the fact that both the labor force
participation rate and the employment-to-population ratio held
below the recent all-time highs.
Still, it is important to note that even though the labor
market cooled a bit in June, it remains extremely tight on balance.
The average workweek of 34.6 hours is within easy shooting distance
of Jan's 34.8 hour peak. Average hourly earnings growth of +4.1%
(yr-yr) is also within easy shooting distance of April's +4.4%
peak, especially since earnings typically burst upward in the first
month of a new quarter. Moreover, the 4.5% unemployment rate is
still far below even the most optimistic estimates of the NAIRU
(non-accelerating inflation rate of unemployment).
Moreover, some of the softness in the report could prove to be
temporary. The +0.2 point increase in the civilian rate to 4.5%
may be short-lived. That gain was tied to a surprising -244,000
worker drop in civilian employment coupled with a +327,000 worker
increase in civilian unemployment. That is out of line with the
strength in payrolls seen in the establishment survey and may be
reversed in the coming months. Moreover, weakness in factory
payrolls was exacerbated by the impact of the GM walkouts. Once
those strikes are settled, factory payrolls, workweeks, and
earnings will rebound.
Still, there is no denying that the June unemployment report
will bolster expectations for softness in key June economic data.
The flat factory workweek and factory overtime levels, combined
with the drop in factory payrolls, pushed aggregate manufacturing
hours worked down -0.3% in June. That will fuel expectations for
a weak June industrial production report, especially since that
report will see a much larger impact from the GM strikes. The
-0.1% decline in aggregate construction hours was partly offset by
the +20,000 worker rebound in construction payrolls. That could
point to some unexpected softness in June housing starts and
construction spending. The -0.1 hour decline in the overall
average workweek and the small increase in earnings points to some
possible weakness in personal income.
Perhaps the most important thing of all was the sharp slowdown
in Q2 aggregate hours to 1.2% from the +3.2% pace seen in Q1. That
should reinforce expectations for a sharp slowdown in Q2 GDP growth
from the +5.4% pace seen in Q2 perhaps to +2.0% or even softer.
As for Fed policy, the implications of the June unemployment
report are not all that weighty. The FOMC does not meet again
until Aug 18th. By then the July unemployment report will have
been released and Thursday's report for June will have been
revised. Moreover, the GM strike may be settled and the Fed may
even have a better picture of the Asian crisis and whether Japan
moves more quickly on policy changes after the July 12th Upper
House elections.
US initial claims move higher as GM strike impact continues --
Initial unemployment claims climbed by +24,000 workers to 390,000
in the week ended June 27th. That was in line with expectations of
394,000 and marked a new 2-1/4 year high in the series. The
previous week's report was revised a bit higher to 366,000 workers
from the earlier report of 364,000 workers. The 4-week moving
average climbed by +13,000 workers to 350,250 workers which was a
new 1-1/2 year high. In the week ended June 20th, the number of
continuing claims climbed by +75,000 workers to 2.238 million. The
4-week moving average climbed by +26,750 workers to 2.158 million.
The initial unemployment claims report was clearly bloated by
the impact of the two strikes at GM parts plants in Flint,
Michigan. While striking workers are not allowed to receive
unemployment benefits, there is nothing to stop them from filing a
claim. However, workers who are not on strike, but laid off as
result of the walkout, are allowed to file for and receive
unemployment benefits. That will bloat the initial claims and
continuing claims series further in the coming weeks, thereby
providing a false signal of weakness in the US labor market.
Moreover, the series will be boosted by the annual re-tooling
efforts among other US automakers. The net result is that the
initial claims series, already a poor leading indicator for the
monthly payrolls reports, will be even less significant for the
financial markets.
US May factory orders fall as inventory growth slows -- May
factory orders fell by -1.6%, a bit softer than expectations for a
-1.4% decline. April factory orders were revised moderately weaker
to +0.7% from the earlier report of +1.2%. The -1.6% drop in May
orders marked the sharpest decline in the series in 5 months.
The decline in May factory orders was broad-based. Durable
goods orders were revised a touch stronger to -2.4% from last
month's advance report of -2.6%. That more than reversed April's
+1.5% increase. May non-durable goods orders fell by -0.7%, adding
to April's -0.3% drop. Non-durable goods orders have now fallen in
4 of the last 5 months.
May non-defense capital goods orders were revised sharply
stronger to -0.5% from last month's advance report of -1.6%. Key
non-defense non-aircraft capital goods orders were revised a bit
stronger to +1.0% from the advance report of +0.9%. That reversed
a bit of April's sharp -3.6% drop. By market category, the decline
in factory orders was tied partly to a -0.8% drop in orders for
consumer staples and by a -1.1% drop in orders for construction
materials. That was partly offset by a +1.6% leap in orders for
auto equipment and a +0.2% gain in orders for home goods and
apparel.
May factory inventories climbed by +0.1%, slowing from April's
+0.4% increase. May factory shipments fell by -0.4%, adding to
April's -1.1% decline. The combination of a small gain in
inventories and a drop in shipments pushed the inventories-to-
shipments ratio up +0.01 point to a new 23-month high of 1.38
months. Still, that left the ratio only 0.04 points above the all-
time low of 1.34 months which was established in July and Sep 1997.
May unfilled orders fell by -0.5%, more than reversing April's
+0.3% increase. Unfilled orders have now fallen in 3 of the last
4 months.
Last Thursday's May factory orders report confirmed the
weakness seen in the May advance durable goods orders report. The
-1.6% drop in orders is tied to the impact of the Asian crisis on
the manufacturing sector as well as to the effort among producers
to trim inventories.
In fact, last Thursday's factory orders report should bolster
expectations for a marked slowdown in inventory growth. May
factory inventories slowed to +0.1% from April's +0.4% increase,
bringing year-on-year growth to +4.1% from April's +4.4% pace. In
fact, year-on-year growth in factory inventories has now slowed
from March's 2-1/4 year peak of +4.7%.
However, the up-tick in the inventories-to-shipments ratio to
a near 2-year high of 1.38 months could suggest that producers will
redouble their efforts to pare inventory growth. What remains
unknown is whether GM boosted inventories ahead of the current
strikes. What is known, however, is that the walkout will trigger
a sharp reduction in the auto maker's inventories which will help
speed along the effort to roll back factory stocks.
There was some bright news in last Thursday's factory orders
report. May key non-defense and non-aircraft capital goods
shipments were revised moderately stronger to +0.3% from last
week's advance report of -0.1%. That suggests the "producers
spending on durable equipment" component of Q2 GDP may be stronger
than previously expected. Moreover, key non-defense and non-
aircraft capital goods orders were revised a shade stronger to
+1.0%. That points to some underlying strength in the factory
sector of the economy. On balance, however, the factory orders
report pointed to weakness in the manufacturing sector from the
Asian crisis and slower growth in coming months, as expected.
US Interest Rates -- US credit market settles mildly stronger
as June unemployment report and Japanese bank plan boost prices --
Sep T-bonds last Thursday edged upward throughout most of the
session and finally settled mildly stronger. Futures closes: USU98
+0-11 at 123-28; TYU98 +0-04 at 114-01; FVU98 +0-015 at 109-275;
TUU98 +0-007 at 104-087; TBU98 unch at 94.965; EDZ98 +.010 at
94.295. Cash closes (3PM NY): cash 30-yr +0-15 at 107-17; cash
30-yr yield -.031 at 5.599; cash 10-yr +0-06 at 101-20; cash 10-yr
yield -.024 at 5.411; cash 5-yr +0-02 at 99-26; cash 5-yr yield
-.014 at 5.419; cash 2-yr +0-020 at 99-290; cash 2-yr yield -.033
at 5.417; 3-mo T-bill -.26 at 49.29.
Sep T-bonds last Thursday climbed to a new 2-1/2 week high of
124-10 where they held just 4 ticks below the contract high of
124-14 (6/16/98). The cash 30-year bond yield Thursday closed at
5.599% and posted a new all-time low of 5.575%. On the 5.575% low,
the yield fell by a total of 51.8 bp from the 3-month high of
6.093% (4/29/98). Dec Euros last Thursday edged to a new 2-1/2
week high of 94.335 as it held below last Tuesday's 2-1/2 month
high of 94.370.
Bullish factors last Thursday included (1) the June
unemployment report which pointed to some cooling in the US labor
market, (2) continued hopes for a sharp slowdown in US economic
activity, (3) renewed mortgage-backed demand as long-bond yield
fell to new all-time lows, (4) the strength in the dollar/yen, (5)
the underlying flight-to-quality bid due to Russian, Japanese and
Asian financial instability, and (6) some short-covering and
technical buying. Bearish factors included (1) the FOMC's decision
to retain its tightening bias at its May meeting which may weigh on
the credit market in overseas trade today and in the US on Monday,
and (2) lingering concerns about BOJ FX intervention.
The credit market continues to bask in the glow of slower US
economic growth, a steady Fed policy, and capital flight from
overseas. Yields continue to trade near the funds rate target of
5-1/2%, even though the prospects for a Fed easing anytime soon are
remote. Given the lack of market-moving news on the calendar for
this week, the market will likely continue to focus on events
overseas, particularly in Asia and especially in Japan.
The federal funds futures curve continues to price in a steady
Fed policy through Q1 1999. The Sep contract last Thursday settled
at 94.47, thereby implying a 5.53% funds rate, while the Dec
contract settled at 94.48, thereby implying a 5.52% funds rate.
The April 1999 contract settled at 94.35, thereby implying a 5.47%
funds rate or still no chance of a Fed easing.
All of the weakness seen thus far in the US economy in
reaction to the Asian crisis has been relegated to the
manufacturing sector of the economy which is just as one would
expect. The service-sector is humming right along, as is the
housing industry. In fact, this week's strong June auto sales
reports point to another month of strong retail sales. It remains
to be seen whether the market will focus on the weaker
manufacturing sector which accounts for only about 20% of the US
economy. The Fed certainly is keeping tabs on the remainder of the
US economy as seen by its May 19 decision to continue its
tightening bias.
Fed expected to conduct another term system repo -- The Fed
today will likely conduct another term system repo operation in
order to stay on top of its fairly large add need in the 2-week
maintenance period that began last Thursday. The Fed faces a $6-$9
billion per day add need due largely to rising currency in
circulation associated with the holiday weekend and the summer
seasonal add need. Moreover, the Fed will need to roll over last
Thursday's expiring $5.520 billion fixed 4-day system repo which
was conducted with the funds rate at 5-5/8%, mildly above the
5-1/2% target.
FOMC at May 19 meeting retained its tightening bias and two
members voted for immediate tightening -- The FOMC at its May 19th
meeting voted to leave its monetary policy unchanged. However,
there were 2 dissenting votes as Cleveland Fed President Jordan and
St. Louis Fed President Poole voted for an immediate tightening.
The minutes were released last Thursday at noon eastern time.
The majority decided that "the uncertainties in the outlook
for economic expansion and inflation remained sufficiently great to
warrant a continued wait-and-see policy stance." The greatest
uncertainty facing the FOMC was the situation in Asia.
Specifically, the Committee was concerned that conditions in the
region were "deteriorating further," especially in Japan. In
addition, the Committee worried that the risk was growing that the
impact of the crisis on the US economy would be "greater" that
expected.
In the domestic economy, the Committee agreed that while
inflation "would continue to be contained, ... the risks clearly
seemed to be tiled in the direction that action would become
necessary at some point to keep inflation low." In that regard,
the Committee voted unanimously to retain its bias toward
tightening in the period leading up to the June 30th and July 1st
meeting.
While growth in the US economy was expected to slow
"considerably," the Committee made clear its concern about
continued strength in domestic demand fundamentals, especially in
the housing market and in capital spending. The Committee also
expressed its concern over the "widespread perceptions of reduced
risk or complacency that had bolstered equity prices beyond levels
that seemed justified by fundamentals." Moreover, the FOMC noted
that such "complacency" was spreading to other markets such as
housing.
FOMC members Poole and Jordan made note of the acceleration in
the monetary aggregates. They argued that strong money supply
growth was feeding the strength in asset prices. Moreover, they
felt that without a small tightening at the May meeting, the Fed
would be put in a position where it will have tighten by a larger
amount down the road.
US Stock Market -- The US stock market last Thursday moved
sideways for most of the day before finally settling mostly lower.
Settlements: Dow Industrials -23.41 at 9025.26, DJU98 -21 at 9103,
Dow Utilities -.30 at 293.84, OEX -1.22 at 559.38, S&P 500 -2.14 at
1146.42, SPU98 +1.60 at 1158.00, NASDAQ Composite -20.46 at
1894.00, and the Russell 2000 -1.54 at 458.31.
Stock market breadth last Thursday was slightly bullish with
advancing issues (1,527) leading declining issues (1,408) by a
nearly 11 to 10 margin. Last Thursday's volume was light at 509
million shares in pre-holiday trade. Declining volume accounted
for 48% of the total volume. The percentage of NYSE stocks above
their 200-day averages rose to 50% after touching a 3-1/2 year low
of 42% last Monday. The number of shares posting new 52-week highs
(247) exceeded the number posting new 52-week lows (219) for the
only the third time in over a month and a half.
The NASDAQ led last Thursday's decline with a 1.07% loss while
the rest of the major indexes suffered minor losses, the Russell
shed -.34%, the Dow -.26% and the S&P 500 -.19%. For the week, the
Russell 2000 gained 1.81% while the NASDAQ rose 1.65%, the S&P 500
+1.52% and the Dow +1%. For the year-to-date, the NASDAQ is in
first place with a 20.61% gain which is followed by the S&P 500 at
+18.14% and the Dow at +14.13%. The Russell 2000 continues to lag
with a 4.87% year-to-date gain.
Bearish factors last Thursday included (1) outsized weakness
in the high-technology sector, (2) profit taking after the S&P 500
extended its 2-week upmove to a total of 6.64% on Wednesday's
all-time high, (3) a sell-off in the computer system and software
shares, (4) earnings warnings from CompUSA and Parametric
Technologies for Q2, and (5) the slightly weaker than expected June
unemployment report which could provide another negative signal for
US economic growth and corporate earnings.
Bullish factors last Thursday included (1) a rally in the
diversified health care sector, (2) hopes that the rest of the
major stock market indexes will follow the S&P 500 into record
territory next week, (3) an increase in mutual fund flows in the
latest week as investors took advantage of the rally in the S&P
500, and (4) the stock market's ability to look past the expected
slowdown in Q2 earnings to an annualized rate of 4% and instead
focus on the expected improvement in the second half of the year.
Dominating last Thursday's most active list at 41.69 million
shares was Netscape Communications (+15.7%) which extended its
2-day gain to 52.66%. Netscape has been gaining on speculation
that a large media company will make an investment in it. The
entire Internet sector has been on fire since Walt Disney bought
43% of Infoseek, an Internet search engine. Parametric Technology,
which sells engineering software, plunged 35% on heavy volume of
39.7 million shares (15 times its 3-month daily average). The
company issued a profit warning for its fiscal Q3 earnings and
cited the Asian economic crisis and the introduction of a new
product as the reasons for the shortfall.
Of the S&P 500's 89 sub-groups 56 fell last Thursday while 33
rose. Market breadth was bearish as 272 of the S&P 500 stocks
closed lower while 196 rose. A 1.34% drop in IBM (see below) last
Thursday dragged down the computer system sub-index which was the
biggest loser on a capitalization weighted basis. Most of the
remaining weakness in the S&P 500 came from software, communication
equipment and semiconductor stocks as investors took profits after
the sharp run-up in the sector over the past several weeks.
Together, these four sub-indexes account for almost 14% of the S&P
500's total weighting.
Of the 30 Dow stocks, 15 rose last Thursday while 14 fell.
AT&T (-1-7/8) was the Dow's biggest loser last Thursday and
extended its slide that started when it announced that it was
buying Tele-Communications for $43 billion. Investors are
questioning the wisdom behind the deal and are worried that AT&T
paid too much. AT&T is also planning to spend $5.7 billion
upgrading TCI's network infrastructure. AT&T is off 16% since
announcing the purchase. IBM fell 1-9/16 after Salomon Smith
Barney cut its Q3 and Q4 earnings estimates. Boeing (+1) was the
Dow's biggest gainer and shook off news that US Airways bought $3.7
billion in planes from Competitor Airbus.
The cash S&P 500 posted a new all-time high of 1148.56 on
Wednesday where it continued to break out above its 3-month
sideways trading range that existed between 1133 and 1075. On
Wednesday's high, the index extended its 2-week upmove to a total
of 6.64%. On Wednesday's all-time high of 560.60, the OEX also
continued to leap above the top of its 3-month trading range
defined as 548.
The Dow Industrials index continues to trend lower in a
2-month pattern of lower major highs and low major lows after
posting an all-time high of 9311.98 on May 4. On its recent (June
16) 3-1/2 month low of 8569.88, the index was down 742.10 points
(7.97%) from that high. The NASDAQ composite index rose to a 2-1/2
month high of 1914.46 last Wednesday where it held just 6.64 points
below its all-time high of 1921.10 (April 22). On last Wednesday's
high, the index was up 11.62% from June 15th's 4-month low of
1715.19.
Commodities -- CRB closes lower as silver tumbles -- The CRB
index last Thursday closed down -.84 points at 214.50 as it
continued to consolidate just below last Tuesday's 5-week high of
216.75. The major lows on the downside are the recent 5-year low
of 208.54 (6/15/98), the 12-year low of 198.17 (Aug 1992), and the
20-2/3 year low of 196.16 (July 1986). For the week, the index
fell -.33%. The CRB index is down -.29% on a month-on-month basis
and down -9.65% on a year-on-year basis.
Closes: Energy: CLQ98 +.13 at 14.50; HUQ98 +.0050 at .4865;
HOQ98 -.0001 at .3938; NGQ98 -.006 at 2.439. Precious Metals:
GCQ98 -2.4 at 295.0; SIU98 -14.3 at 533.2; PLV98 -1.9 at 367.6.
Grains: S X98 -5-4 at 602-0; SMZ98 -1.80 at 160.20; BOZ98 -.07 at
26.13; C Z98 -4-2 at 248-2; W Z98 -5-0 at 295-2. Livestock: LCQ98
+.10 at 64.30; FCQ98 -.18 at 72.17; LHQ98 -.25 at 54.32; PBQ98 +.50
at 60.62. Softs: SBV98 +.18 at 8.58; KCU98 -2.20 at 109.35; CCU98
+20. at 1626.; JOU98 +1.05 at 108.65. Industrials: CTZ98 -.52 at
76.93; HGU98 +.35 at 72.85; LBN98 +.30 at 295.90.
September silver was the CRB's biggest loser last Thursday as
the contract fell -14.3 cents to close at 533.0 (-2.61%). On last
Tuesday's high at 558.5, the contract rose 61.5 cents (12.4%) from
the May 29th 8-month low at 497.0. Silver was pressured by last
Thursday's sharp decline in the Japanese yen after the LDP bridge
bank reform plan was judged disappointingly hesitant and vague.
The precious metals as a group have traded in tandem with currency
movements recently since demand from Asia is an important factor in
the global demand equation. Weak currencies in Asia make silver
and other precious metals that much more expensive.
August gold last Thursday closed down -2.4 at $295.0 (-.81%)
as it remained below the psychologically important $300 level. The
South African rand posted an all-time low last Thursday and
producers from that country are expected to resume forward sales of
gold, which is priced in dollars, if the rand currency situation
remains negative. Aug gold posted a 5-1/2 month low of $285.6 on
June 16 where it extended its 2-1/2 month downmove to a total of
$32.6 (10.25%). The next major line of support is $283.9, the
18-2/3 year weekly-nearest low. On that low, August gold was down
$60 (17.45%) from its 1-year high of $343.9 (9/30/97).
August crude oil rose +13 cents last Thursday to close at
$14.50. On June 15, crude oil futures touched a 12-year low of
$11.40 on the weekly-nearest chart (July 98 contract). Oil
producers began to notify customers last Thursday of output
reductions related to the recent OPEC production cuts. OPEC
production cuts for the year now total 3.2 mln barrels per day.
The Iraqi flare-up last Tuesday suggests that the resolution of
sanctions imposed on Iraq since the Gulf War may now become more
distant.
Canada -- The Canadian dollar last Friday closed .12 cents
weaker at C$1.4688/US$, but held above the all-time low of
C$1.4763/US$ (6/16/98). The Canadian dollar has been pressured by
the resurgent Asian crisis and the subsequent collapse in commodity
prices.
The Sep Canadian bond last Friday settled +.02 points at
125.64 but held below the contract high of 126.03 (6/15/98). On
the 126.03 high, the Sep bond had climbed by a total of 1.13 points
from the 4-1/2 week low of 124.90 (6/5/98). The Canadian 10-year
cash yield last Thursday settled -5.9 bp at 5.297% as it held above
the 2-1/2 month low of 5.252% (6/15/98), where it was 6.2 bp above
the all-time low of 5.190% which was established on Apr 3. The Sep
3-month bankers acceptance last Thursday closed +2 bp at 94.91,
posting a new 2-1/2 month high of 94.93. On last Friday's high,
the contract rebounded by a total of 38 bp from the 6-month low of
94.55 (6/11/98), but held 21 bp below the 5-1/2 month high of 95.14
(4/3).
The Toronto-300 stock index last Friday closed +49.00 points
at 7419.60, moving higher from the 3-month low of 7094.60
(6/15/98). On that 3-month low, the index was down by 743.10
points (9.5%) from the all-time high of 7837.70 (3/23/98).
Forex -- Dollar supported by apparent Hashimoto comments
supporting permanent tax cut -- The dollar last Friday sold-off
fairly sharply against the yen and mildly against the D-mark,
giving back some of last Thursday's sharp rally. Friday Dollar
closes (3PM NY): cash dollar index -.52 at 101.46; dlr/yen -1.95 at
139.38; dlr/mark -.0030 at 1.8183; dlr/Swiss -.0032 at 1.5296;
stlg/dlr -.0080 at 1.6480; USD/CAD +.0012 at 1.4688. Mark closes:
mark/yen +.73 at 76.64; stlg/DM -.0216 at 2.9973; mark/FRF +.0006
at 3.3518; mark/lira -.46 at 984.66; mark/Swiss +.0008 at .8411.
Thursday Dollar closes (3PM NY): cash dollar index +.51 at
101.98; dlr/yen +3.28 at 141.33; dlr/mark +.0029 at 1.8213;
dlr/Swiss +.0045 at 1.5328; stlg/dlr -.0038 at 1.6560; USD/CAD
+.0051 at 1.4676. Mark closes: mark/yen +1.68 at 77.59; stlg/DM
-.0021 at 3.0168; mark/FRF -.0006 at 3.3506; mark/lira -.77 at
984.35; mark/Swiss +.0012 at .8415. Futures closes: DXU98 +.44 at
101.74; JYU98 -.0176 at .7145; DMU98 -.0008 at .5515; SFU98 -.0025
at .6569; BPU98 -.0020 at 1.6504; CDU98 -.0023 at .6824; ADU98
-.0074 at .6129.
The dlr/yen last Friday closed -1.95 yen, giving back about
2/3 of last Thursday's very sharp +3.28 yen rally. The dlr/yen is
about mid-way of the range established by the recent sell-off from
the 7-3/4 year high of 146.73 yen (6/17/98) to the 2-month low of
133.73 yen (6/19/98). The major highs on the upside are the
psychological 150 yen level and the 11-1/2 year high of 160.30
(4/90). The dlr/mark last Friday closed -.30 pfennigs at 1.8183
DM, slightly below last Thursday's 2-1/2 month high of 1.8254 DM.
On last Thursday's, the dlr/DM rebounded by 7.15 pfennigs from the
5-month low of 1.7539 DM. The major highs on the upside are the
9-1/2 month high of 1.8561 DM (4/2/98) and the 8-1/2 year high of
1.8913 DM (8/97).
Bearish factors for the dollar included (1) varying reports
that Prime Minister Hashimoto may have made a comment in support of
a permanent tax cut, (2) last Thursday's US June unemployment
report which pointed to some cooling of the US labor market, and
(3) some long liquidation pressures after last Thursday's sharp
dollar rally.
Bullish factors for the dollar included (1) disappointment
with the Japanese government's plan for a large-scale bank bailout
which fell far short of matching establishing a Japanese version of
the RTC to clean up the bad loan mess, (2) the hawkish May 19 FOMC
meeting minutes which were released last Thursday, and (3) the
continued market uncertainty in Russia which pressured the mark.
The yen rallied sharply last Friday in response to a comment
by Prime Minister Hashimoto which may have signalled that he favors
a permanent tax cut. There were differing media reports on his
comment and it wasn't clear whether he meant to endorse a permanent
tax cut or whether he meant that any tax reform should be
permanent. In any case, the dollar/yen plunged on the report and
closed the day nearly 2 yen lower. There is widespread speculation
that the Japanese government may be moving to agree quickly on a
permanent tax cut, possibly before Mr. Hashimoto's trip to the US
later this month.
European Comment -- The European markets today will focus on
(1) today's release of the UK May industrial production report, (2)
anticipation of tomorrow's European Central Bank meeting, the UK
MPC meeting on Wed/Thur and the Bundesbank and Bank of France
meetings on Thursday, (3) the European credit markets which closed
little changed last Friday, and (4) the European stock markets
which closed moderately higher last Friday.
Germany -- The German financial markets are looking ahead to
tomorrow's scheduled release of the June German unemployment report
for evidence of stronger domestic demand. In May, seasonally-
adjusted unemployment fell by -60,000 workers to 4.324 million
workers. That pushed the unemployment rate down -0.1 point to
11.2%. The unadjusted unemployment rate last in May fell by -0.5
points to 10.9%. Additional strengthening of the labor market will
fuel hopes for a sustained rebound in domestic demand which has
been lagging as the German economy has been led by the export
sector.
A German newspaper last Friday reported that tomorrow's June
unemployment report would show a decline of 100,000 persons to 4.1
million. The newspaper quoted the deputy chairwoman of the DGB
union umbrella organization as the source of its information.
The Bundesbank Council meets this Thursday amid fading talk
about a near-term tightening. The last rate changes were as
follows: 2-week repo rate +30 bp to 3.30% on Oct, 9, 1997,
discount rate -50 bp to 2.50% on April 19, 1996, Lombard rate -50
bp to 4.50% on April 19, 1996. The Bundesbank next week is
expected to once again pre-announce that its next two repo
operations will be held at the fixed 3.30% rate. The BBK has been
pre-announcing its repo rates ever since it raised that key rate on
Oct 9, 1997.
There is currently little reason for a rate hike from a
domestic macroeconomic standpoint. Moreover, BBK officials in
recent weeks have clearly signalled that policy will remain on hold
for the time being. On Wednesday, BBK council member Koebnick said
that there is no need for a rate hike at least through August.
German inflation pressures remain under wraps after the brief
acceleration seen last summer. The preliminary June west German
CPI of +1.2% (yr-yr) eased from May's +1.3% (yr-yr) report and
April's +1.4% and remains well below last August's peak of +2.0%.
That suggested there has been no significant pick-up in price
pressures despite the 1 percentage point increase in value added
tax that took effect on April 1st. Moreover, import prices slowed
sharply in to -1.6% (yr-yr) in May where they have fallen back
drastically from Aug's peak of an alarming +5.4% (yr-yr).
Even M3 growth is favorable, having slowed to +4.4% in May
from the near-term peak of +5.1% in March. M3 growth remains
within the lower half of the BBK's +3-6% target band. Lastly, BBK
officials have to pleased with the recent strength in the mark as
the German currency holds its own despite the surge in the dlr/yen.
On the other hand, short-term rate convergence ahead of EMU
will keep the market on edge about the Bundesbank's policy
intentions. The Bundesbank wants to start the euro off on a strong
footing as nations with higher levels of government debt and
inflation are allowed into the common currency.
Moreover, signs of stronger domestic demand in Germany will
also keep the markets alert for any BBK leaning toward tightening
in the next several months. The May unemployment report pointed
some strength in domestic demand. If the stronger labor market
leads to sustained strength in wages and consumer spending, anxiety
about a near-term BBK tightening will certainly increase.
On balance, however, any Bundesbank tightening at this point
would be out of place from a domestic standpoint with the favorable
German inflation and money supply situations. A tightening could
generate considerable political flak from the German government as
well as from across Europe, particularly with the outcome of the
Asian and Russian crises still unclear. Therefore, forecasts as
to the timing of any EMU-related tightening center on Q4.
In data released last Friday, April German industrial
production was revised lower to -1.3% from -0.6% (mo-mo) due to
some benchmark revisions. March industrial production was left
unrevised at +0.8% while Feb was revised lower to -0.7% from -0.3%
(mo-mo). The data put the German manufacturing sector in a weaker
light although the German economy is expected to show continued
improvement in coming quarters.
The German credit market closed mostly higher last Friday as
bund yields fell to an all-time low. Bullish factors included (1)
expectations that Asian economies will continue to dampen global
inflationary pressures, (2) the belief that the BBK will leave
rates unchanged at Thursday's meeting, and (3) carryover support
from last Thursday's US June unemployment report which sent US bond
yields to all-time lows. The German credit market is focussed on
tomorrow's Jun unemployment report and May industrial production
figures.
The 10-year Bund yield last Friday closed -1 bp at an all-time
low yield of 4.728%. Liffe Sep Bunds last Friday closed up +.02 at
a contract high settlement of 108.73 but held below last Thursday's
contract high of 108.77. The Liffe Sep Euromark last Friday closed
down -.005 at 96.360 after matching last Thursday's contract high
of 96.365.
The Dax index last Friday closed up 49 points at an all-time
high settlement of 5953 (+.83%). The Dax rose 1.41% last week and
is up +40.08% for the year to date in mark terms and +38.53% in US
dollar terms. The evolving situation in Japan will be on
investor's minds this week as will the 1997 earnings report from
Germany's largest builder, Philipp Holzman, which is due tomorrow.
The car and truck sector will come under scrutiny this week
following reports that Volvo and Volkswagen are in merger talks.
France -- In data released last Thursday, the French May PPI
fell by -0.2% (mo-mo) and +0.3% (yr-yr). That was mildly weaker
than expectations for a report of unchanged (mo-mo) and -0.1%
(yr-yr). The decline in producer prices suggests that inflationary
pressures in the French economy remain dormant.
The BOF last Thursday conducted a neutral open market
operation, leaving its interest rates unchanged. The key
intervention rate stands at 3.30% and the 5 to 10-day repo rate
holds at 4.60%.
The French franc last Friday closed .02 centimes stronger at
3.3518 francs/DM. The franc has been trading sideways in a narrow
range for the past 6-months, below the all-time high of 3.3297
FF/DM (2/16). On that all-time high, the franc was 2.42 centimes
above the franc's ERM parity rate of 3.3539 FF/DM.
The French credit market closed near unchanged last Friday as
expectations that short-term interest rates on the Continent would
remain steady (the BBK and the Bank of France meet this week) were
offset by profit-taking following the rally seen over the past 1-
1/2 months. The French credit market is focussed on Wednesday's
June INSEE household confidence survey and Friday's preliminary
June CPI report.
The 10-year Notional yield last Friday closed up .4 bp at
4.806% as it continued to hover above its all-time low yield of
4.794% posted on Jun 15th. The Sep Notional bond last Friday
closed unchanged at 104.79 and held below last Thursday's contract
high of 104.88. The Sep Pibor last Friday closed unchanged at
96.355 after posting a new contract high of 96.370.
The CAC40 stock index last Friday closed up 52 points at an
all-time high settlement of 4304 (+1.23%). For the week, the index
rose +2.1%. The CAC40 is up 43.53% for the year-to-date in franc
terms and up 41.02% in US dollar terms. The automotive sector will
be the focus this week after Renault and PSA Peugeot-Citroen rose
last week 14% and 1% respectively on the likelihood of further
consolidation in the industry.
UK -- The British financial markets this week will focus on
the 2-day monthly Monetary Policy Committee meeting on Wednesday
and Thursday. The market is discounting the chance of a 25 bp rate
hike at this week's meeting at about one-third. The MPC last month
surprised the market with a 25 bp rate hike which pushed the base
rate up to 7.5%.
Speculation about a follow-up tightening emerged when it was
learned that the Bank did not have any knowledge of Chancellor
Brown's plan to accelerate growth in real public spending. After
the June tightening, Mr. Grown announced a reorganization of
public-sector spending, including plans to boost real spending by
+2.25% per year for the next 3 fiscal years. That is well above
the +1.5% real annual increase assumed by the Bank in its May
Inflation Report. That fiscal easing will likely be frowned upon
by the Bank's hawks.
Moreover, the recent labor market data showed that earnings
growth continued to accelerate. March underlying average earnings
strengthened to +5.2% (yr-yr) from Feb's +4.9% (yr-yr) gain which
was already stronger than the Bank's professed limit of +4.5%.
Worse still, private sector wages climbed by +5.9% (yr-yr) in
March, up from Feb's +5.6% surge.
The Blair government then made matters worse when it unveiled
plans for a 3.60 sterling per hour minimum wage, effective next
April. That will have an upward ripple-effect on wages just when
wage pressures are accelerating on their own. Moreover, the
strength in wages may be feeding through to unexpected strength in
retail sales. May retail sales climbed by +1.7% (mo-mo) and by
+4.6% (yr-yr), dashing hopes for a sharp slowdown in domestic
demand.
Finally, price pressures are running well above the Bank's
target of +2.5% (yr-yr) for the underlying RPIX. In May, the RPIX
climbed by +3.2% (yr-yr), nearing the +3.5% mark which will trigger
the requirement that BOE Governor George write a letter to Mr.
Brown detailing exactly why the RPIX is so far above target. This
is hardly in line with the Bank's forecast for a steady slowdown in
price pressures to under the 2.5% target by year-end.
In UK data released last Friday, the UK June service-sector
activity index fell by 1.5 points to 55.4% from May's 56.9%,
according to the Chartered Institute of Purchasing and Supply. The
report suggested that the service sector is cooling a bit in
response to the BOE's tight-money regime and the weakness in the
manufacturing sector. The June price sub-index was unchanged at
50.9%.
In data released last Thursday, the CBI's June survey showed
that UK retail sales slowed, with a net 19% of retailers reporting
higher year-on-year sales, down from May's 25% and April's 26%.
The CBI said that retail sales appeared to be hurt by poor weather,
the BOE's recent interest rate hike, and general economic
uncertainty. In addition, consumers' attention may have been drawn
away from the stores by the World Cup tournament. However,
retailers remain optimistic going forward with a net 27% of
retailers expecting higher sales in July.
In a sign of the times in the UK, 41% of UK finance directors
polled by Accountancy Age expect a recession by the end of this
year. Of the respondents, 44% do not expect a recession.
UK consumer confidence fell sharply to -19 in late-June from
May's level of 1, hitting a 3-year low. The index by MORI measures
the net balance of 19% of respondents who said economic conditions
will get better in the next 12 minutes minus the 38% of respondents
who believe conditions will get worse.
Sterling last Friday settled sharply lower by 2.4 pfennigs at
2.9953 DM, falling back from last Thursday's 2-1/2 month high of
3.0271 DM. On last Thursday's high, sterling rebounded by a total
of 16.54 pfennigs from the May 22nd 7-1/2 month low of 2.8617 DM
but remained 8.29 pfennigs below the 8-3/4 year high of 3.1100 DM
(4/3/98). Last Friday's sell-off was attributed to some long
liquidation pressure after the very sharp and sustained rally seen
in the past 6-weeks.
The UK credit market closed lower last Friday with downward
pressure stemming from the increase in the prices-paid and prices-
charged indexes in the June Purchasing managers services survey.
The UK credit market is now focussed on today's May industrial
production and this week's round of European central bank meetings.
The 10-year gilt yield last Friday closed +1.1 bp at 5.844%
but held below its 1-1/2 month high yield of 5.931% that was posted
on June 19th. Sep gilts last Friday closed down -.09 points at
108.80 where they remained within their 2-week trading range. Sep
short sterling last Friday closed down -.010 at 92.090 where it
held above last June 19th's 5-1/2 year low of 92.020.
The FTSE stock index last Friday closed up 28.2 points at a 3-
1/2 week high settlement of 5988.4 (+.47%) as it moved to the top
of its 2-1/2 month long trading range between approximately 6065
and 5650. For the week, the index rose +1.9%. The FTSE is up
16.61% for the year-to-date in sterling terms and up 16.68% in US
dollar terms. Jitters that the BOE's Monetary Policy Committee
could move to raise rates on Wednesday will keep the FTSE on guard
this week. British banking stocks, active in Asia, will be watched
for signs that Japan's plan to solve its bad loan crisis will be
successful.
Asian Comment -- Japan -- The LDP's preliminary bridge bank
plan, which was released last Thursday, provided a framework
whereby insolvent banks can be put under government control and
then either merged into good banks or turned into a temporary
public bridge bank. Government regulators will run and support the
bridge banks temporarily until the operations can be transferred to
a healthy bank. There were no details available on whether the
bridge loan plan would provide any relief for the bad loans
currently being held by solvent banks.
Specifically, the plan comes in 2 stages. In the first stage,
the bridge bank will assume the operations of failed banks. This
is expected to last for up to 2 years, during which time the banks'
assets will be evaluated and, hopefully a receiver will be found
for the failed institution. If no receiver is found, then phase 2
begins. At this time the bridge bank's term will be extended for
up to 3 years and it will continue to assume the operations of the
failed institution.
The markets generally were not impressed with the bridge bank
plan. The plan provides an easier avenue to force insolvent banks
to be liquidated and/or sold but the bridge banks would still be
government-supported zombies that would hurt competition while the
government seeks to sell the operation to a good bank. In
addition, the bridge bank plan does not appear to relief for the
bad loans held by existing solvent banks. The head of the newly
established Financial Supervisory Agency (FSA), Masaharu Hino, said
that his agency in cooperation with the BOJ will inspect the
nation's largest 19 banks as an emergency step within the next 2-3
months. That may improve the transparency of the bad loan problem
to the markets and perhaps lead to scares regarding the insolvency
of other large Japanese banks.
The most negative aspect of the plan is that it appears to be
aimed solely at keeping the insolvent banks' borrowers in business.
The danger here is that the bridge bank may offer loans to
customers at abnormally low rates and on preferential terms. This
is entirely possible with the politically-connected construction
companies. Therefore, the bridge bank could block the creation of
a proper banking system whereby risky borrowers are forced to pay
higher lending rates. That, in turn, will hurt healthy banks by
impeding their profitability.
The Japanese markets today will continue keep an eye on
reaction to last Thursday's banking proposals, as well as any
additional news concerning tax cuts. Speculation about permanent
tax cuts increased last week amid reports that the LDP and the
government have agreed to implement permanent tax cuts in fiscal
1999-2000 and that PM Hashimoto will make the announcement during
the campaign for the July 12 upper house election. It remains
unclear whether any tax changes will still wait for the annual tax
panel report which is released in December.
The Nikkei index last Friday closed up 39 points at 16,511
(+.24%), where it held just below last Thursday's 3-month high of
16,743. The Nikkei index has now recovered by 14.6% (2,218 points)
from the recent 5-1/2 month low of 14,615 (6/16/98). The index
rose 8.56% for the week. Nikkei is up 8.21% for the year-to-date
in yen terms and is up 1.4% in US dollar terms.
Japanese stocks will likely be boosted this week by
expectations that the ruling Liberal Democratic Party is prepared
to make permanent corporate and income tax cuts. Prime Minister
Hashimoto said last Wednesday that the changes would be discussed
following the July 12 election in the upper house of the Diet on
July 12. The market is on guard, however, with the government's
credibility stretched thin. Tokyo Sep JGBs last Friday closed
-.38 at 132.50, mildly above last Wednesday's 1-1/2 month low of
131.96. The JGB market was hurt by a report that PM Hashimoto
seems to favor a permanent tax cut. In London, Sep JGBs later
settled at 132.48, .02 points below the Tokyo close. The benchmark
No. 182 10-year JGB closed +3.5 bp at 1.340%, well above the recent
all-time record low closing yield of 1.130% (6/2/98). The Dec
Euroyen last Friday closed +4.5 bp at 99.300, posting a new 1-week
high and recovering further from last Tuesday's 3-month low of
99.145.
Asian Stock Market Closes (Fri): Hong Kong Hang Seng -2.56%,
Australia All-Ordinaries +.01%, SingaporeStraights Times
Industrials -.20%, South Korea Composite Index -1.04%, Thailand
Stock Exch -1.53%, Taiwan weighted index -.75%, Philippines
composite index +.16%, Malaysia composite index -.92%, China SE
Shanghai A +.26%, Indonesia Jakarta composite index +.89%.
Asian Stock Market Closes (Thu): Hong Kong Hang Seng +3.78%,
Australia All-Ordinaries +1.60%, Singapore Straights Times
Industrials +2.72%, South Korea Composite Index -1.20%, Thailand
Stock Exch +3.98%, Taiwan weighted index +3.55%, Philippines
composite index +4.17%, Malaysia composite index +1.48%, China SE
Shanghai A +1.17%, Indonesia Jakarta composite index +2.15%.
OPTIMA FINANCIAL NEWS SCHEDULE^ Monday 7/6/98
A. Today's News (local & GMT release times shown)
Mon US 1000 ET 1400 June NAPM non-manufacturing index, May
+1.0 point to 64.0%.
1000 ET 1400 May housing completions, April +2.8% to
1.530 mln units.
1300 ET 1700 Weekly Treasury auction of $13.0 bln in 3 &
6-month bills, unch from last wk (pay down
$1.625 bln).
N/A Ford releases June vehicle sales, overall
annual rate expected near 14.1 mln units,
May 14.2 mln units.
UK 0930 UK 0830 May industrial production.
B. Future News
Sometime this week:
GER N/A June pan-German CPI, May +0.3% m/m &
+1/3% y/y.
N/A May manufacturing orders, April +0.6% m/m.
N/A May retail sales, April real sales -2% y/y
(unadjusted).
Tue US 0900 ET 1300 BTM/Schroder weekly retail sales, last -0.4%
w/w.
1200 ET 1600 Chicago Fed President Moskow speaks on
community investment.
1440 ET 1840 Redbook retailer sales survey for week ended
July 4th, 1st 4 weeks -0.7%.
GER 0955 CET 0755 June unemployment report, May -60,000
(seasonally-adjusted).
N/A May industrial production, April -0.6% m/m.
EUR N/A Monthly ECB meeting in Frankfurt.
Wed US 1000 ET 1400 May wholesale trade: April inventories -0.6%;
April sales +0.1%; April inv-to-sales ratio
-0.01 point to 1.29 mos.
1200 ET 1600 Deputy Treasury Secretary Summers and
BOF Governor Trichet participate in a satellite
link-up on financial markets.
1300 ET 1700 Treasury auction of $8.0 bln in re-opened
30-year indexed bonds (mature in April 2028).
1500 ET 1900 May consumer credit expected +$4.5 bln,
April +$5.5 bln.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence, last -2 points to 23.
UK N/A 2-day BOE MPC meeting begins.
FRA 0845 CET 0645 INSEE releases its June household
confidence survey.
JPN N/A LDP expected to release its latest plan for
dealing with the bad loans problem.
N/A June wholesale prices, May -1.7% y/y; June
domestic WPI, May -2.3% y/y.
Thu US 0830 ET 1230 Initial unemployment claims for the week
ended July 4th, last +24,000 to 390,000.
1630 ET 2030 Money supply report for week ended June
30th; June money supply; 1st-week
reserves.
UK 1200 UK 1100 2-day BOE MPC meeting ends,
announcement expected at noon UK.
GER N/A Regular bi-weekly Bundesbank meeting, press
conference to follow.
N/A Finance Minister Waigel presents 1999
federal budget.
FRA 0845 CET 0645 Final Q1 GDP, preliminary report was +0.6%
q/q.
N/A BOF Monetary Policy Council meeting.
RUS N/A Prime Minister Kiriyenko to unveil government
financial plan.
Fri US 0830 ET 1230 June PPI expected unch, May +0.2%; June
core PPI expected +0.1%, May +0.2%.
1430 ET 1830 Treasury announces the details of next
Thursday's 52-week bill auction.
FRA 0845 CET 0645 April current account balance, March FFR
13.3 bln surplus.
0850 CET 0650 Preliminary June CPI expected unch m/m &
+1.0% y/y, May +0.1% m/m & +1.0% y/y.
JPN N/A June bank lending, May -2.2% y/y.
Sun JPN N/A Japanese Upper House elections: 126 of 252
seats contested, LDP now holds 118 seats.
Week of July 13-17:
Mon US 1000 ET 1400 Q1 retailers' profits, Q4 after-tax profits
averaged 2.9% of sales.
1300 ET 1700 Weekly Treasury auction of 3 & 6-month bills.
Tue US 0830 ET 1230 June retail sales, May +0.9%; excluding
autos, May +0.4%.
0830 ET 1230 June CPI, May +0.3%; June core CPI, May
+0.2%.
0900 ET 1300 BTM/Schroder weekly retail sales.
0900 ET 1300 Atlanta Fed releases its June economic
survey, May -1.6 points to 18.6.
1000 ET 1400 June real earnings, May +0.6%.
1440 ET 1840 Redbook retailer sales survey for week ended
July 11th.
Wed US 0830 ET 1230 May business inventories, April +0.2%; May
business sales, April -0.1%, May inv-to-sales
ratio, April +0.01 point to 1.38 mos.
1000 ET 1400 June import prices, May -0.1%; June export
prices, May +0.1%.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
UK N/A BOE publishes minutes from June MPC
meeting.
Thu US 0830 ET 1230 Initial unemployment claims for week ended
July 11th.
0915 ET 1315 June industrial production, May +0.5%; June
capacity utilization rate, May +0.1 point to
82.2%.
1000 ET 1400 July Philadelphia Fed manufacturing survey,
June +10.7 points to 28.2.
1300 ET 1700 Treasury auction of 52-week bills.
1630 ET 2030 Money supply report for week ended July 6th;
June money supply; 2nd-week reserves.
JPN N/A BOJ Policy Board meeting.
Fri US 0830 ET 1230 May goods & services trade deficit, April
-$14.5 bln.
Future News:
Sep 27: German general election.
Upcoming Central Bank meetings:
FOMC: Aug 18, Sep 29, Nov 17, Dec 22.
Last G7 monetary policy changes:
US Federal funds target raised +25 bp to 5.5% on 3/25/97; discount
rate cut -25 bp to 5.0% on 1/31/96.
CAN Overnight rate target band +50 bp to 4.5-5.0% on 1/30/98.
UK Base rate +25 bp to 7.50% on 6/4/98.
GER Discount rate -50 bp to 2.50% and Lombard rate -50 bp to 4.50%
on 4/18/96 (effective 4/19/96).
2-wk repo rate +30 bp to 3.3% on 10/9/97 for 10/15/97 wkly repo;
after 13-1/2 months at fixed-rate 3.0%.
FRA Intervention rate +20 bp to 3.30% on 10/9/97; 5-10 day repo rate
-15 bp to 4.60% on 12/17/96.
ITA Discount rate -75 bp to 5.50% on 12/23/97; Lombard rate -75 bp
to 7.0% on 12/23/97.
JPN Discount rate -50 bp to .50%, unsecured overnight call loan rate
-40 bp to .45-.50% from .85-.90% on 9/8/95.
Times: US Eastern Time ET=GMT-5; British Time UK=GMT; Continental
European Time CET=GMT+1; Japan Time JT=GMT+9.
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