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OPTIMA RESEARCH INVESTMENT, INC.
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Thursday 7/9/98 -- 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 same-store retail chain
sales reports and the release of the weekly initial unemployment
claims, money supply, and reserve reports, (3) the US Treasury
market which settled mildly weaker yesterday as long liquidation
and supply pressures weighed on the market, (4) the dollar which
settled mildly stronger, lifted by dithering in Japan and worries
about Russia, (5) the stock market which settled sharply stronger
yesterday, and (6) the CRB index which closed mildly weaker
yesterday.
Today's barrage of June same-store retail chain sales reports
are expected to point to a slowdown in non-auto consumer spending
as seen in the weekly retailer sales surveys. Those surveys
suggested that sales were below expectations for most retailers.
That weakness may be tied to inclement weather and heat in the
South, the fires in parts of Florida, and a general slowdown in
spending following the unsustainable strength seen in the spring
months. Schroders reported a +7.7% (yr-yr) jump in May same-store
sales which followed a very strong +10.5% (yr-yr) surge in April.
US wholesale inventories rebound in May -- May wholesale
inventories climbed by +0.6%, reversing April's -0.6% decline. On
a year-on-year basis, wholesale inventories climbed by +6.6%. The
strength in May wholesale stocks stemmed from a +1.1% increase in
non-durable goods inventories, while durable goods stocks climbed
by only +0.3%. That increase was held back by a -2.2% plunge in
auto inventories.
May wholesale sales fell by -0.3%, marking the first decline
in the series in 6 months. April wholesale sales were left
unrevised at +0.1%. On a year-on-year basis, May wholesale sales
fell by -0.4%.
The combination of a rebound in inventories and a decline in
sales pushed the May wholesale inventories-to-sales ratio up +0.01
point to 1.30 months. At 1.30 months the ratio matched the 2-year
high which was established in Nov of last year and previously
matched in Dec, Feb and March. Moreover, that left the ratio
moderately above the Feb 1997 13-3/4 year low of 1.24 months.
Yesterday's May wholesale trade report continues to point to
a slowdown in inventory growth in Q2. Although wholesale stocks
rebounded in May, through the first 2 months of the quarter
wholesale inventories are still down a touch. Looking at the
behavior of May business inventories, the +0.6% jump in wholesale
stocks followed last week's report of a +0.1% increase in factory
inventories. Wholesale and factory inventories account for about
70% of next week's May business inventories report, with retail
stocks accounting for the remainder. Early forecasts call for a
modest +0.2% to +0.4% increase in retail stocks and a similar
increase in overall business inventories.
Looking ahead, the GM strikes will have a significant impact
on business inventories. As factory lots and dealer showrooms run
out of vehicles, factory, wholesale, and retail auto inventories
will plunge, probably dragging overall stocks down as well. That
will further brake overall GDP growth, albeit only temporarily.
Consumer credit edged higher -- May consumer credit climbed by
+$400 million, much weaker than expectations for a +$4.5 billion
gain. That marked the smallest increase in 6 months. On a year-
on-year basis, May consumer credit climbed by +3.5%, down from
April's +3.8% (yr-yr) gain and the smallest year-on-year increase
in 4-3/4 years. April consumer credit was revised a bit stronger
to +$5.6 billion from the earlier report of +$5.5 billion. The
strength in May consumer credit stemmed from a +$2.6 billion
increase in miscellaneous credit, as well as a +$1.0 billion
advance in auto credit. Partly offsetting those gains was a -$3.3
billion drop in revolving credit.
As usual, today's May consumer credit report was generally
ignored by the financial markets. However, today's report extends
the trend toward slower year-on-year growth in consumer credit.
That slowdown, probably triggered by stronger wage growth which
enables consumers to pay-down debt, should pave the way for
sustained strength in consumer spending down the road. In that
regard, the weaker than expected increase in May consumer credit
may actually point to stronger economic activity in the future.
US Interest Rates -- US credit market settles mildly weaker as
supply and long liquidation pressures continue -- Sep T-bonds
yesterday pushed higher in European trading, but tailed off
throughout the US session to finally settle mildly weaker. Futures
closes: USU98 -0-11 at 123-14; TYU98 -0-02 at 113-31; FVU98 unch at
109-275; TUU98 -0-005 at 104-082; TBU98 unch at 94.965; EDZ98 unch
at 94.295. Cash closes (3PM NY): cash 30-yr -0-13 at 107-06; cash
30-yr yield +.027 at 5.622; cash 10-yr -0-03 at 101-16; cash 10-yr
yield +.012 at 5.427; cash 5-yr -0-01 at 99-25; cash 5-yr yield
+.007 at 5.426; cash 2-yr unch at 99-295; cash 2-yr yield unch at
5.408; 3-mo T-bill -.022 at 4.950.
Sep T-bonds yesterday again held below last Thursday's 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 yesterday
closed at 5.622% and held above Monday's all-time low of 5.570%.
On that 5.570% low, the yield fell by a total of 52.3 bp from the
3-month high of 6.093% (4/29/98). Dec Euros yesterday held below
last Thursday's 2-1/2 week high of 94.335 where, in turn, it held
below last Tuesday's 2-1/2 month high of 94.370.
Bearish factors included (1) long liquidation pressures
following this week's slide to new all-time low yields, (2) some
supply pressures tied to corporate paper ($1.2 bln in Merrill Lynch
offerings and $2 bln in a Fannie Mae issue), as well as yesterday's
TIPS auction, and (3) lingering concerns about BOJ FX intervention.
Bullish factors yesterday included (1) the softer than expected May
consumer credit report which fanned hopes for a sharp slowdown in
US economic activity, (2) the strength in the dollar which lifted
Treasury prices in European trading, (3) the underlying flight-to-
quality bid due to Russian, Japanese and Asian financial
instability, and (4) anticipation of a favorable June PPI report on
Friday.
Yesterday's Treasury auction of $8 billion in re-opened
30-year indexed bonds met with weak demand. The auction yield of
3.680% was a bit above expectations for a 3.67% yield. The median
yield bid was 3.630% and the low yield bid was 3.50%. That left
hefty 5.0 bp and 18.0 bp spreads to the auction yield. The bid
cover ratio was 2.38 which was mildly below the 2.58 ratio seen at
April's 30-year indexed bond auction. Worse still, non-competitive
bids totaled a mere $6.6 million, far below the already-weak April
level of $46 million.
The soft demand seen at yesterday's 30-year indexed bond
auction was hardly surprising. The general public continues to shy
away from these issues as seen in the very weak $6.6 million in
non-comps. Still, the 194.2 bp spread between the 3.68% auction
yield at today's sale and the 5.622% closing yield on the benchmark
nominal bond provides a very rough outlook for expected inflation
over the coming years (about 2%, plus or minus about 50 bp). That
outlook, however, remains very rough since the indexed yield
continues to be affected by problems such as the lack of liquidity
in the indexed Treasury market.
Fed may conduct a supplemental system repo -- The Fed today
may conduct a supplemental system repo operation if upward pressure
on the funds rate resumes. Although the Fed has Monday's fixed
$5.363 billion 4-day system repo operation in place until Friday,
that operation probably fell a bit short of addressing the Fed's
$6-$8 billion per day add need. That add need stems mostly from
rising currency in circulation associated with the holiday weekend
and the summer seasonal add requirement. The Fed yesterday
remained out of the open market with the funds rate trading at
5-7/16%, a bit below the 5-1/2% target.
US Stock Market -- The US stock market yesterday moved higher
in a steady uptrend before tailing off into the close to finally
settle higher. Settlements: Dow Industrials +89.93 at 9174.97,
DJU98 +77 at 9256, Dow Utilities +.12 at 292.85, OEX +6.43 at
569.72, S&P 500 +11.71 at 1166.37, SPU98 +7.60 at 1174.90, NASDAQ
Composite +27.28 at 1935.39, and the Russell 2000 +.93 at 459.97.
The S&P 500 (cash and futures), the OEX and the NASDAQ closed at
all-time high settlements yesterday.
Stock market breadth yesterday was bullish with advancing
issues (1,725) leading declining issues (1,242) by a 7 to 5 margin.
Yesterday's volume was average at 605 million shares with declining
volume accounting for 34% of the total. The percentage of NYSE
stocks above their 200-day averages was unchanged at a 1-month high
of 51% where it was up from last Monday's 3-1/2 year low of 42%.
The number of shares posting new 52-week highs (317) exceeded the
number posting new 52-week lows (274).
The technology-rich NASDAQ rose 1.43% yesterday and led the
S&P 500 which rose 1.01%, the Dow which added .99% and the Russell
2000 which gained .20%. For the year-to-date, the NASDAQ is in
first place with a 23.25% gain followed by the S&P 500 at +20.19%
and the Dow at +16.02%. The Russell 2000 continues to lag with a
5.25% year-to-date gain.
Bullish factors yesterday included (1) a rise in Travelers
Group and Citicorp after an analyst at Merrill Lynch said that
earnings for the combined company could surge over the next 1-1/2
years, (2) indications that mutual fund inflows remain strong, (3)
the rally in the NASDAQ to a new all-time high as Intel surged, (4)
strong gains in the computer system and software stocks, and (5)
the drop in 30-year bond yields to an all-time low of 5.570% on
Monday which should eventually filter into lower corporate
borrowing expenses.
Estimates for earnings growth in the S&P 500 for the second
quarter have been reduced to almost zero, versus expectations for
a 3.5% gain several weeks ago. This downward revision is probably
excessive and leaves room for an advance in stock prices if
earnings can do even just slightly better. This is what happened
in Q1 when earnings expectations were cut to 0.5% before the flood
of releases. Earnings almost had to come in higher than expected
and share prices rallied quickly as the market realized its
expectations had been far too pessimistic. Among the corporations
expected to report Q2 earnings today and their consensus
expectations according to First Call estimates are: Burlington
Resources ($.16), Dallas Semiconductor ($.47), Dow Jones & Co.
($.46), and Laidlaw ($.26).
Bearish factors for the stock market include (1) Motorola's
weak forecast for Q3 earnings tied to its own forecast of a further
slowdown in industry-wide chip sales, (2) valuation concerns with
the S&P 500 trading at 27.5 times 12-month trailing earnings,
which is near its Apr 3rd record high of 28.3, and trading at 6.09
times its book value, which is just below its Apr 17th all-time
high of 6.17, (3) weak market breadth with the broader Russell 2000
index remaining well below its all-time high and with the S&P 500
rising on strength in only the largest-cap stocks, (4) signs of
excessive speculation in the internet stocks suggesting that there
is too much cash chasing returns, and (5) the growing realization
that operating earnings for the S&P 500 have virtually no chance of
showing a double digit gain in 1998 and will instead log their
slowest growth rate since 1991.
Topping yesterday's most active list at 21.82 million shares
was Intel which bucked Motorola's expectations for a slowdown in
chip sales in the second half and closed 4.24% higher. Dell
(+5.91%) traded 15.7 million times and gained after an industry
report called the company's notebook PCs superior to its
competitors and praised Dell's service and pricing.
Of the S&P 500's 89 sub-groups, 63 rose yesterday while 26
fell. Market breadth was bullish as 335 of the S&P 500 stocks
closed higher while 142 fell. The computer software sub-index was
among yesterday's best performers as the group rose 1%. For the
year-to-date, the heavily weighted index is up 46.44%. The gain is
being driven by Microsoft which is up 70% for the year-to-date
after rising 1.8% yesterday. Expectations that Windows 98 added to
Q2 revenues and a favorable court ruling in June sent the shares to
an all-time high of 110-1/8 yesterday. According to First Call,
Microsoft is expected to report earnings of 48 cents per share on
July 16, up from previous expectations.
Of the 30 Dow stocks, 23 rose yesterday while 7 fell.
Travelers Group (+4-11/16) was the Dow's best performer after
Merrill Lynch's financial services analyst praised its merger with
Citicorp and gave the new company (Citigroup) a "buy" rating.
There remain a lot of uncertainties, however, regarding the merger
of disparate operations and the merger itself is predicated on the
unproven notion that consumers will welcome the ability to purchase
many financial services from one source. General Motors (+3-3/8)
rose on hopes that a settlement between the carmaker and the United
Auto Workers would take place before the end of this week. Phillip
Morris fell 1-5/16 mainly on fears that the company's effort to
peddle cigarettes internationally will come up short.
The cash S&P 500 posted a new all-time high of 1166.89
yesterday where it continued its break-out above the 3-month
sideways trading range that existed between 1133 and 1075. On
yesterday's high, the index extended its 3-week upmove to a total
of 8.58%. On yesterday's all-time high of 570.24, the OEX also
continued to leap above the top of its 3-month trading range
defined as 548.
The Dow Industrials index posted a 1-1/2 month high of 9184.44
yesterday where it broke the 2-month pattern of lower major highs
and low major lows. The index is up 7.17% in the last 3-1/2 weeks
but remains below its all-time high of 9311.98 (May 4). The NASDAQ
composite index rose to a new all-time high of 1935.90 yesterday
where it was up 12.87% from the Jun 15th 4-month low of 1715.19.
Stock mutual funds slow a bit but remain strong -- According
to Trim Tabs Financial Services, $4.81 billion flowed into domestic
equity funds in the week ended Monday, a week that saw the S&P 500
rally to new highs. In the previous week, $6.86 billion flowed in.
So far in 1998, mutual fund flows are running about 16% ahead of
1997's record total and at an average rate of about $1 billion per
day. Investors can be counted on as a source of new funds for the
rally and an extension in the S&P 500 to new highs can be expected
to attract further money.
Investment advisor sentiment continues to rise -- Investment
advisor sentiment, as measured by the Investors Intelligence
newsletter, rose to a 7-week high in the latest survey completed
last Friday. The percentage of advisors who considered themselves
bullish rose to 47.1% where it was up from 44.9% in the previous
week. The percentage that considered themselves bearish, or who
expected a decline of 10% or more, fell to 52.9% where they
remained in the majority. The recent pick-up in advisor sentiment
over the past month is not yet a bearish indication of excess
bullish sentiment but it is closing in on the 1-2/3 year of 54.6%
posted 2-1/2 months ago.
Commodities -- CRB closes slightly lower led by orange juice
and cocoa -- The CRB index yesterday closed down -.36 points at
213.42 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). The CRB
index is up +.05% on a month-on-month basis but down -8.38% on a
year-on-year basis.
Closes: Energy: CLQ98 +.23 at 13.85; HUQ98 -.0013 at .4679;
HOQ98 +.0022 at .3782; NGQ98 +.001 at 2.366. Precious Metals:
GCQ98 -1.7 at 294.2; SIU98 -4.3 at 536.5; PLV98 +1.1 at 382.1.
Grains: S X98 +4-4 at 618-4; SMZ98 +1.70 at 164.20; BOZ98 +.14 at
26.64; C Z98 +3-0 at 254-0; W Z98 -3-0 at 298-2. Livestock: LCQ98
+.05 at 64.35; FCQ98 +.50 at 72.42; LHQ98 -.35 at 54.75; PBQ98 +.20
at 57.62. Softs: SBV98 -.06 at 8.34; KCU98 +2.10 at 112.55; CCU98
-20. at 1604.; JOU98 -2.70 at 98.75. Industrials: CTZ98 -.49 at
76.83; HGU98 -.20 at 72.20; LBN98 -7.10 at 277.40.
Sep orange juice was the CRB's biggest loser yesterday as the
contract fell -2.70 to close at 98.75. On yesterday's 2-1/2 month
low at 98.50, the contract fell 21 cents (17.57%) from the May 11th
1-3/4 year high of 119.50. Rains soaked Florida orange groves and
put a dent in the 3-month drought which had threatened the orange
crop. US supplies of frozen concentrated orange juice rose a
higher-than-expected 5% in May to a record 2.59 bln pounds
according to a USDA report last Friday.
Aug crude oil rose +23 cents yesterday to close at $13.85. On
Jun 15th, crude oil futures touched a 12-year low of $11.40 on the
weekly-nearest chart (Jul 98 contract). Crude oil received support
yesterday as Nigerian military leaders dissolved the government.
Nigeria supplies 3% of global production. The API reported after
the close on Tuesday that crude oil stockpiles rose +0.6 mln
barrels while gasoline stockpiles fell -1.4 mln barrels.
Separately, OPEC production cuts for the year now total 3.2 mln
barrels per day, or 4.3% of global demand.
August gold yesterday closed down -1.7 at $294.2 as it
remained below the psychologically important $300 level. The ECB's
Duisenberg announced that the new central bank will keep 900 tons
of gold as part of its reserves. That leaves an open question as
to the fate of the remaining 12,000 tons of gold that are held by
European governments, which equate to five years of global gold
production. Aug gold posted a 5-1/2 month low of $285.6 on June
16th 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).
Canada -- The Canadian dollar yesterday closed .15 cents
stronger at C$1.4715/US$, 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 yesterday settled +.07 points at 126.00
as it posted a new contract high of 126.18 (6/15/98). On that
126.18 high, the Sep bond had climbed by a total of 1.28 points
from the 4-1/2 week low of 124.90 (6/5/98). The Canadian 10-year
cash yield yesterday settled +0.9 bp at 5.248% as it rebounded
above the new 3-month low of 5.228% established earlier in the day.
On that low, it was 4.3 bp above the all-time low of 5.190% which
was established on Apr 3. The Sep 3-month bankers acceptance
yesterday closed +4 bp at 94.92, holding below last Friday's 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 yesterday closed -3.30 points at
7451.30, holding above 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 settles mildly stronger as disappointment with
Japan and worries about Russia continue -- The dollar yesterday
edged upward through European trading and until mid-day in the US
before the greenback tailed off a bit to finally settle mildly
stronger. Dollar closes (3PM NY): cash dollar index +.15 at
101.82; dlr/yen +.52 at 139.24; dlr/mark +.0035 at 1.8178;
dlr/Swiss +.0013 at 1.5278; stlg/dlr -.0016 at 1.6362; USD/CAD
-.0015 at 1.4715. Mark closes: mark/yen +.14 at 76.59; stlg/DM
+.0028 at 2.9750; mark/FRF +.0003 at 3.3522; mark/lira +.12 at
984.71; mark/Swiss -.0009 at .8403. Futures closes: DXU98 +.14 at
101.64; JYU98 -.0027 at .7250; DMU98 -.0013 at .5522; SFU98 -.0005
at .6588; BPU98 -.0016 at 1.6300; CDU98 +.0009 at .6804; ADU98
-.0025 at .6176.
The dlr/yen yesterday closed +.52 yen, as it consolidated in
the middle 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 dlr/mark yesterday closed +.35 pfennigs
at 1.8178 DM, mildly below last Thursday's 2-1/2 month high of
1.8254 DM.
Bullish factors for the dollar included (1) continued waffling
by Japanese officials concerning a permanent tax cut, (2) the
continued market uncertainty in Russia which pressured the mark,
and (3) the underlying strength in US domestic demand. Bearish
factors for the dollar included (1) hopes that Japanese action on
the economy may grow more aggressive following Sunday's Upper House
election, and (2) worries about a sharp slowdown in US economic
activity in the second half of the year.
PM Hashimoto yesterday confirmed that he favors a permanent
tax cut, but not until 1999. However, the market was unimpressed
and now wants details on the size of the cut. A 2 trillion yen tax
cut is probably already discounted in the marketplace. Moreover,
the continued dithering by Japanese officials may trigger some
verbal needling by US officials. That, in turn, could bolster the
dlr/yen.
Yesterday's Russian T-bill auction was disappointing as the
government sold a mere 721 mln rubles of T-bills of its initial
offering of 4 bln. The yield was a very high 99.57%. The markets
are now watching for the results of the second T-bill auction. The
government today again canceled 2 primary T-bill auctions and a
Federal Loan Bond auction since it refuses to pay interest rates
above 80%. Interest rates are currently running near 100%.
The New York Times yesterday reported that the IMF will only
offer Russia some $5-$6 billion in aid, far below the $10-$15
billion that Moscow is looking for. That will leave the Yeltsin
government scrambling to fill the holes in its finances. The
government's and the economy's precarious position continues to
boost the dollar/mark.
European Comment -- The European markets today will focus on
(1) the conclusion of the 2-day UK MPC meeting, as well as today's
Bundesbank and Bank of France meetings, (2) today's release of the
French final Q1 GDP report, (3) the European credit markets which
closed mildly weaker yesterday, and (4) the European stock markets
which closed mildly stronger yesterday.
Greece -- The Greek central bank yesterday cut interest rates
by 75 bp in a surprise move. That followed a 25 bp rate cut
recently on June 3. The rate cuts were made possible by a strong
Greek drachma and an improving inflation situation in the country.
The Greek rate cut did not have any wider implications for the
direction of interest rates in Europe.
Germany -- The Bundesbank Council meets today amid
expectations for a steady monetary policy. 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 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.
The BBK will hold a press conference following today's
meeting. The briefing is expected to begin at 1215 CET (615 EDT).
The markets will likely listen closely for clues about short-term
rate convergence ahead of EMU. Short-term rate convergence ahead
of EMU continued to 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.
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.
Yesterday's BBK repo operation injected a net 100 million DM
into the money market. That was in line with expectations.
May real wholesale sales climbed by +7% (yr-yr). Through the
first 5 months of the year, real wholesale sales climbed by +5%
(yr-yr). Unfortunately, the data cannot be broken down by domestic
or overseas demand which would have shed some light on the
resurgence in domestic economic activity.
As expected, the Kohl cabinet yesterday approved the 465.3
billion DM budget for 1999. Details may be forthcoming today or
tomorrow. However, since this is an election year, the 1999 budget
will not be finalized and approved until after the Sep 27th vote.
The German credit market closed mixed yesterday. There is a
nearly unanimous expectation of no change in interest rates at
today's Bundesbank Council meeting. The Bundesbank auctioned off
DM 9.6 bln in 10-year bonds at an average yield of 4.68% with a
robust bid-cover of 4.56. The German credit market is focussed on
Jun pan-German CPI and today's Bundesbank Council meeting.
The 10-year Bund yield yesterday closed +0.4 bp at 4.721%
after posting an all-time low yield of 4.691% on Tuesday. Liffe
Sep Bunds yesterday closed down -.05 at 108.77 after posting a
contract high of 109.06 on Tuesday. The Liffe Sep Euromark
yesterday closed up +.005 at 96.375 after posting a contract high
of 96.385 on Monday.
The Dax index yesterday closed up 52 points (+.88%) at an all-
time high settlement of 6013 after posting a new all-time high of
6022. The Dax is up +41.5% for the year to date in mark terms and
+39.97% in US dollar terms. M&A speculation boosted Deutsche
Telecom after EU regulators approved Worldcom's purchase of MCI
Communications while Deutsche Lufthansa extended its 2-day rally
following positive comments from Salomon Smith Barney.
France -- INSEE's household confidence index remained
unchanged at -16 in June. That was a bit stronger than the reading
of -18 seen in both March and April. Still, the index remains net
negative as consumers remain concerned about their quality of life
and the outlook for inflation.
The French franc yesterday closed .03 centimes weaker at
3.3522 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 mixed yesterday. The Bank of
France is not expected to alter interest rates at today's Monetary
Policy Council meeting. Jun INSEE household confidence was
unchanged at a -16 reading and slightly weaker than expectations of
a -15 reading. The French credit market is focussed on today's
final Q1 GDP (prelim +0.6% q/q) and BOF Monetary Policy Council
meeting.
The 10-year Notional yield yesterday closed up +0.8 bp at
4.803% after posting an all-time low yield of 4.764% on Tuesday.
The Sep Notional bond yesterday closed -.04 at 104.90 after posting
a contract high of 105.13 on Tuesday. The Sep Pibor yesterday
closed +.010 at 96.375 after it also posted a contract high at
96.385 on Tuesday.
The CAC40 stock index yesterday closed up 7 points at an all-
time high settlement of 4340. The CAC40 is up 44.72% for the
year-to-date in franc terms and up 42.19% in US dollar terms. The
oil companies, Elf Aquitaine (-1.38%) and Total (-1.15%), continued
to fall yesterday despite a rally in crude oil prices while Alcatel
extended its 2-day rally to a total of 7.49 following its addition
to Salomon Smith Barney's recommended list.
UK -- The British markets are focussed on today's conclusion
of the 2-day BOE Monetary Policy Committee meeting. Speculation
about a tightening was dented by Monday's weaker-than-expected May
industrial production report of -1.2% (mo-mo) as manufacturing
output fell by -0.4% (mo-mo). Still, the market is discounting the
chance of a 25 bp rate hike at this week's meeting at about 33%.
The MPC last month surprised the market with a 25 bp rate hike
which pushed the base rate up to 7.5%.
The Bank will make an announcement about the outcome of the
MPC meeting at noon local time (7 AM EDT).
Sterling yesterday settled +.28 pfennigs at 2.9750 DM, still
well below 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). The
sell-off seen since last Friday was attributed to some long
liquidation pressures as well as to the weak UK May industrial
production report which dampened talk of another tightening at this
week's MPC meeting.
The UK credit market closed lower yesterday as bearish factors
included (1) the lower US credit market, and 2) nervousness ahead
of today's BOE Monetary Policy Committee announcement. The UK
credit market is focussed on today's BOE Monetary Policy Committee
announcement.
The 10-year gilt yield yesterday closed +2.9 bp at 5.868% and
held below its 1-1/2 month high yield of 5.931% that was posted on
Jun 19th. Sep gilts yesterday closed down -.28 points at 108.55
where they remained within the 2-week trading range. Sep short
sterling yesterday closed down -.010 at 92.080 where it held above
the Jun 19th 5-1/2 year low of 92.020.
The FTSE stock index yesterday closed up 6.2 points at a
1-month high settlement of 6009.6 as it continued to trade near the
top of its 2-1/2 month long trading range between approximately
6065and 5650. The FTSE is up 17.02% for the year-to-date in
sterling terms and up 16.52% in US dollar terms. Pharmaceutical
stocks rose yesterday but most of the gain was offset by further
selling in the oil sector. Shell and British Petroleum fell .77%
and .68% respectively.
Asian Comment -- Japan -- Prime Minister Hashimoto yesterday,
in an eagerly awaited press conference at 1730 Tokyo time, said
that he favors a permanent tax cut for fiscal 1999 (Apr-Mar). He
said a host of other possible tax changes will be considered by the
end of this year, including changes to the highest income tax
bracket (now at 65%), to housing and property taxes, and to the tax
rebate system.
The markets were unimpressed by Mr. Hashimoto's statement in
favor of permanent income tax cuts because he didn't mention an
amount and because the tax cuts would not even begin until April of
next year. That's a long way away for an economy that is currently
in a recession and has a crippled banking system.
LDP policy chief Yamasaki reportedly favors a permanent income
tax cut and will begin formal consideration of the issue after
Sunday's election, according to a report in yesterday's Yomiuri
Shimbun. That was consistent with PM Hashimoto's explicit
acceptance today of the idea of a permanent tax cut.
Japan's June domestic wholesale price index (WPI) was
unchanged (mo-mo) and -2.1% (yr-yr) which was in line with market
expectations. The WPI was unchanged after 5 consecutive months of
declines on a month-on-month basis. The fact that wholesale prices
are down -2.1% on a year-on-year basis nevertheless keeps alive
worries about a deflationaryspiral in Japan.
Japan's large trade surplus was highlighted yesterday by the
news that the June 1-20 trade surplus of 719 bln yen was up 60% on
the year.
The Nikkei index yesterday closed up 115 points at 16,531
(+.70%), still consolidating mildly below last Thursday's 3-month
high of 16,743. The stock market is waiting for Sunday's upper
house election and for further details on the government's
willingness to accept a permanent tax cut. On last Thursday's
high, the Nikkei index recovered sharply by 14.6% (2,218 points)
from the recent 5-month low of 14,615 (6/16/98). Nikkei is up
8.34% for the year-to-date in yen terms and is up 1.43% in US
dollar terms.
Tokyo Sep JGBs yesterday closed sharply lower by -.50 points
at 132.36, moving back down toward last Wednesday's 1-1/2 month low
of 131.96. JGBs saw pressure ahead of PM Hashimoto's late-
afternoon press conference in which he confirmed that he favors
permanent income tax cut. In London, Sep JGBs settled at 132.60,
+.24 points from the Tokyo close. The benchmark No. 182 10-year
JGB closed +5.5 bp at 1.360%, well above the recent all-time record
low closing yield of 1.130% (6/2/98). The Dec Euroyen yesterday
closed unchanged at 99.255, retaining most of last week's recovery
rally.
Asian Stock Market Closes: Hong Kong Hang Seng +2.19%,
Australia All-Ordinaries +.17%, Singapore Straights Times
Industrials -.66%, South Korea Composite Index +.41%, Thailand
Stock Exch +.42%, Taiwan weighted index +1.16%, Philippines
composite index -.15%, Malaysia composite index -2.62%, China SE
Shanghai A +1.11%, Indonesia Jakarta composite index -2.27%.
OPTIMA FINANCIAL NEWS SCHEDULE^ Thursday 7/9/98
A. Today's News (local & GMT release times shown)
Thu US N/A June same-store retail chain sales reports.
0830 ET 1230 Initial unemployment claims for the week
ended July 4th expected +30,000 to 420,000,
last +24,000 to 390,000.
1630 ET 2030 Money supply report for week ended June
30th; June money supply; 1st-week
reserves.
CAN 0815 ET 1215 June housing starts expected -13.7% to an
annual rate of 120,000 units, May 139,000
units.
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 (1215 CET).
FRA 0845 CET 0645 Final Q1 GDP expected unrevised from the
preliminary report of +0.6% q/q & +3.4% y/y.
N/A BOF Monetary Policy Council meeting.
RUS N/A Prime Minister Kiriyenko to unveil government
financial plan.
B. Future News
Sometime this week:
GER N/A June pan-German CPI, May +0.3% m/m &
+1/3% y/y.
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.
CAN 0700 ET 1100 June unemployment expected unch at 8.4%,
May unch at 8.4%.
GER 1400 CET 1200 BBK member Koebnick speaks in Wuerzburg.
FRA 0845 CET 0645 April current account balance expected FFR
17.5 bln surplus, 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:
Sometime this week:
GER N/A May retail sales, April real sales -2% y/y
(unadjusted) & -4.7% y/y (adjusted).
N/A June wholesale prices.
N/A June M3 money supply, May +4.4%.
N/A June Ifo business climate index.
N/A May trade & current account balances.
Mon US 1000 ET 1400 Q1 retailers' profits, Q4 after-tax profits
averaged 2.9% of sales.
1300 ET 1700 Weekly Treasury auction of $13.0 bln in 3 &
6-month bills, unch from last week (pay down
$900 mln).
JPN 1400 JT 0500 May key machinery orders, April -16.8% m/m.
N/A BIS meeting in Tokyo.
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, last +0.3%
w/w.
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, June -0.7%.
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%.
1330 ET 1730 St. Louis Fed President Poole speaks on the
US economic outlook.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
CAN 0830 ET 1230 May manufacturing survey.
0830 ET 1230 May new vehicle sales.
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.
1345 ET 1745 Chicago Fed President Moskow speaks on
the 7th District & the FOMC.
1630 ET 2030 Money supply report for week ended July 6th;
June money supply; 2nd-week reserves.
CAN 0700 ET 1100 June CPI expected +1.1% y/y, May +1.1% y/y.
JPN N/A BOJ Policy Board meeting.
N/A Diet expected to begin debate on permanent
income tax cuts.
Fri US 0830 ET 1230 May goods & services trade deficit, April
-$14.5 bln.
1000 ET 1400 University of Michigan releases its early July
consumer sentiment index, June -0.9 points to
105.6.
CAN 0830 ET 1230 May merchandise trade surplus expected
C$900 mln, April C$1.2 bln.
0830 ET 1230 June LEI.
JPN N/A EPA releases its July monthly report.
Week of July 20-24:
Sometime this week:
GER N/A June PPI.
Mon US 1300 ET 1700 National Association of Home Builders
releases its July single-family home sales
index, June +3 points to 71.
1300 ET 1700 Weekly Treasury auction of 3 & 6-month bills.
CAN 0830 ET 1230 May wholesale trade.
Tue US 0830 ET 1230 June housing starts, May -0.7% to an annual
rate of 1.530 mln units.
June building permits, May +1.7% to 1.543
mln units.
0830 ET 1230 June experimental CPI, May +1.5% y/y; June
core experimental CPI, May +2.0% y/y.
0900 ET 1300 BTM/Schroder weekly retail sales.
1000 ET 1400 Fed Chairman Greenspan delivers his semi-
annual Humphrey-Hawkins testimony before
the Senate Banking Committee.
1440 ET 1840 Redbook retailer sales survey for week ended
July 18th.
CAN 0830 ET 1230 May retail sales.
JPN N/A BOJ releases its monthly report.
N/A BOJ Governor Hayami holds press
conference.
Wed US N/A Japanese Prime Minister Hashimoto meets
President Clinton in Washington.
1400 ET 1800 June Treasury statement, June 1997 $54.635
bln surplus.
1430 ET 1830 Treasury announces the details of next
week's 2-year note auction.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
GER 1800 CET 1600 BBK member Issing speaks in Frankfurt.
Thu US 0830 ET 1230 Initial unemployment claims for week ended
July 18th.
1000 ET 1400 Fed Chairman Greenspan delivers his semi-
annual Humphrey-Hawkins testimony before
the House Banking subcommittee.
1630 ET 2030 Money supply report for week ended July
13th; 1st-week reserves.
GER N/A Regular bi-weekly BBK Council meeting, last
before summer recess (next mtg Aug 20th).
Fri US N/A No US economic reports scheduled at this
time.
Week of July 27-31:
Mon US 1000 ET 1400 June existing home sales, May +1.0% to an
annual rate of 4.82 mln units.
1300 ET 1700 Weekly Treasury auction of 3 & 6-month bills.
Tue US 0900 ET 1300 BTM/Schroder weekly retail sales.
1000 ET 1400 Conference Board releases its July consumer
confidence index, June +1.4 points to 137.6.
1440 ET 1840 Redbook retailer sales survey for week ended
July 25th.
JPN N/A BOJ Policy Board meeting.
Wed US 0830 ET 1230 Advance June durable goods orders, May
-2.4%.
1300 ET 1700 Treasury auction of 2-year notes.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
CAN 0830 ET 1230 June industrial product price index.
June raw materials product price index.
JPN N/A Preliminary June industrial production, May
-2.0% m/m & -11.2% y/y.
N/A June large retailers sales, May -0.9% y/y.
Thu US 0830 ET 1230 Initial unemployment claims for week ended
July 25th.
0830 ET 1230 July APICS Business Outlook Index, June
+3.6 points to 51.0.
0830 ET 1230 Q2 Employment Cost Index, Q1 +0.7% q/q &
+3.3% y/y.
1000 ET 1400 June new single-family home sales, May
+0.3% to an annual rate of 890,000 units.
1630 ET 2030 Money supply report for week ended July
20th; 2nd-week reserves.
Fri US 0830 ET 1230 Preliminary Q2 GDP, Q1 +5.4% with chain
price index +1.2%.
1000 ET 1400 July Chicago-area Purchasing Managers
index, June -3.4 points to 52.9%.
CAN 0830 ET 1230 May GDP expected +0.2%, April unch.
JPN N/A July Tokyo CPI, June -0.1% m/m & +0.4%
y/y.
N/A June pan-Japan CPI, May unch m/m & +0.5%
y/y.
N/A June unemployment rate, May +0.01 point to
4.14%.
N/A June labor supply/demand ratio, May -0.02
points to 0.53.
Week of Aug 3-7:
Mon US 0830 ET 1230 June personal income, May +0.5%; June
personal consumption, May +0.6%.
1000 ET 1400 July NAPM index, June -1.8 points to 49.6%.
1000 ET 1400 June construction spending, May -1.5%.
N/A Most US automakers release July sales
reports, June 14.4 mln unit pace.
Tue US 0900 ET 1300 BTM/Schroder weekly retail sales.
1000 ET 1400 June LEI, May unch.
1440 ET 1840 Redbook retailer sales survey for week ended
Aug 1st.
N/A GM expected to release its July vehicle sales
report.
CAN 0830 ET 1230 July building permits.
Wed US 1000 ET 1400 June housing completions, May -3.0% to an
annual rate of 1.455 mln units.
1400 ET 1800 Fed releases Tan Book ahead of Aug 18th
FOMC meeting.
1430 ET 1830 Treasury announces details of Aug refunding
operation (5-year, 10-year, & 30-year
maturities).
N/A Ford releases July vehicle sales.
1830 ET 2230 ABC/Money Magazine weekly consumer
confidence.
CAN N/A 3-day Premiers' conference in Saskatoon
begins.
Thu US N/A July same-store retail chain sales reports.
0830 ET 1230 Initial unemployment claims for week ended
Aug 1st.
1000 ET 1400 June factory orders, May -1.6%.
1630 ET 2030 Money supply report for week ended July
27th; 1st-week reserves.
CAN N/A 3-day Premiers' conference in Saskatoon
continues.
Fri US 0830 ET 1230 July unemployment report: July non-farm
payrolls, June +205,000;
July manufacturing payrolls, June -29,000;
July average workweek, June -0.1 hour to
34.6 hours;
July average hourly earnings, June +0.1%
m/m & +4.1% y/y to $12.74;
July civilian unemployment rate, June +0.2
points to 4.5%.
1000 ET 1400 June wholesale trade: May inventories
+0.6%; May sales -0.3%; May inv-to-sales
ratio +0.01 point to 1.30 mos.
1000 ET 1400 July leading inflation index, June 102.9.
1500 ET 1900 June consumer credit.
CAN N/A 2-day Premiers' conference in Saskatoon
ends.
0700 ET 1100 July unemployment report.
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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