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OPTIMA RESEARCH INVESTMENT, INC.
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Friday 7/10/98 -- 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 PPI report, (3) the US
Treasury market which settled mildly stronger yesterday, boosted by
the strength in the dollar, (4) the dollar which settled sharply
stronger, lifted by dithering in Japan and worries about Russia,
(5) the stock market which settled sharply lower yesterday, and (6)
the CRB index which closed moderately weaker yesterday.
Today's US June PPI report is expected to be unchanged after
edging +0.2% higher in May. Excluding food and energy,
the June core PPI is expected to post a +0.1% advance, down a
bit from May's +0.2% increase. Expectations for a flat headline PPI
center on the likelihood for falling energy costs which would be in
line with last month's slide in crude oil prices. Some of the expected
weakness in energy prices will be offset by rising food prices, as well as
rising core producer prices. Upward pressure on the core PPI may stem from
tobacco and new car prices. All in all, today's report should
cement expectations for steady price pressures in the US economy,
although there may be some nervousness about the possibility of the
core PPI posting gains for 3 straight months. That has not
happened in about 2 years.
US chain store sales are on the strong side -- Yesterday's
barrage of June same-store retail chain sales reports were stronger
than expected, thereby boosting expectations for another healthy
retail sales report for June. Still, chain store sales growth was
slower than in April and May, and that could point to some cooling
of personal spending. Among chains, strength was seen in The Gap
(+15.0%) and Wal-Mart (+9.0%), while softness was seen in Sears
(+0.3%) and JCPenney (-2.1%). The unexpected general strength in
yesterday's reports, combined with the record strength in June new
car sales reports, should feed through to expectations for a fairly
robust gain in June retail sales.
US initial unemployment claims hold steady -- Initial
unemployment claims in the week ended July 4th edged -1,000 workers
lower to 392,000. That was well below forecasts for a reading of
420,000 workers. The previous week's report was revised a bit
higher to 393,000 workers from the earlier report of 390,000
workers. The 4-week moving average climbed by +19,500 workers to
a new 2-1/4 year high of 370,500 workers. In the week ended June
27th, the number of continuing claims surged by +199,000 workers to
2.411 million. The 4-week moving average jumped by +71,750 workers
to 2.223 million.
The steady level of initial claims was a surprise for the
markets which anticipated another GM-related jump in the series.
However, the seasonal adjustment factor for the initial claims
series "anticipates" a jump in unadjusted claims in the latest week
and the coming weeks due to the annual re-tooling of auto assembly
plants for the new model year. In fact, if GM were not shutdown by
the strikes, its workers would be idled anyway by the annual re-
tooling effort. Moreover, the Independence Day holiday may have
also helped keep initial claims under wraps in the latest week.
Another surprise in yesterday's report was the sharp +199,000
worker jump in continuing claims. That was certainly bloated by
the impact of the GM strike and by seasonal adjustments which fail
to "look for" any jump in continuing claims until mid-July. Still,
this bears watching as it may also point to some acceleration in
layoffs tied to the slowdown in the manufacturing sector of the
economy.
All in all, however, the strike and auto re-tooling noise in
the initial claims series suggests that the markets will generally
ignore this report until the GM situation and annual re-tooling
effort are resolved.
US Interest Rates -- US credit market settles mildly stronger
as consolidation continues -- Sep T-bonds yesterday drifted
sideways in European trading, moved higher early in the US session,
and the drifted sideways once again to finally settle mildly
stronger. Futures closes: USU98 +0-11 at 123-25; TYU98 +0-07 at
114-06; FVU98 +0-050 at 110-005; TUU98 +0-022 at 104-105; TBU98
+.010 at 94.975; EDZ98 +.015 at 94.310. Cash closes (3PM NY): cash
30-yr +0-10 at 107-16; cash 30-yr yield -.021 at 5.601; cash 10-yr
+0-06 at 101-22; cash 10-yr yield -.025 at 5.402; cash 5-yr +0-04
at 99-29; cash 5-yr yield -.029 at 5.397; cash 2-yr unch at 99-295;
cash 2-yr yield unch at 5.408; 3-mo T-bill -.016 at 4.934.
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 5.601% 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.
Bullish factors yesterday included (1) anticipation of a
favorable US June PPI report tomorrow, (2) yesterday's rally in the
dollar, (3) the most recent instability in Russia in the past
several weeks, and (4) underlying expectations for a slowdown in US
GDP to the 2% area from Q1's +5.4%. Bearish factors included (1)
yesterday's stronger than expected retail chain store sales
reports, and (2) some supply pressures tied to this week's influx
of corporate paper as well as Wednesday's TIPS auction.
Fed expected to conduct a weekend system repo -- The Fed today
will likely conduct an over-the-weekend system repo operation if
upward pressure on the funds rate resumes. In addition, Monday's
fixed $5.363 billion 4-day system repo expires today. Although the
Fed faces an add need of about $6-$8 billion per day in the
remaining days of the 2-week period, the bulk of the add need fell
in the days surrounding the Independence Day weekend. Therefore,
the Fed will likely conduct small system repos to address whatever
remains of the add requirement before the 2-week period ends next
Wednesday. The Fed yesterday remained out of the open market with
the funds rate trading at the 5-1/2% target.
Money supply aggregates are mixed in the latest week -- In the
week ended June 29th, the 3 money supply aggregates posted mixed
performances: M1 edged +$800 million higher, M2 fell by -$2.0
billion, and M3 climbed by +$2.8 billion. That left year-on-year
growth in the widely-watched M2 aggregate at +7.0%, down from the
+7.4% gains posted in each of the previous 2 weeks. Those were the
strongest increases in 11 years.
Yesterday's first week reserve report was again on the easy
side. First week borrowings averaged $200 million per day, with
adjusted borrowings at a mere $4 million per day. The Fed's system
repos (last Friday's and Monday's 4-day operations) injected an
average of $5.452 billion per day into the banking system. There
were no large 1-day net misses in the statement week. The main
factor draining reserves was a jump in currency in circulation.
The main factors adding reserves were a decline in Treasury
balances at the Fed and an increase in float.
US Stock Market -- The US stock market yesterday moved lower
for most of the session to finally settle with moderate losses.
Settlements: Dow Industrials -85.19 at 9089.78, DJU98 -103 at 9153,
Dow Utilities -2.13 at 290.72, OEX -3.87 at 565.86, S&P 500 -7.81
at 1158.56, SPU98 -7.40 at 1167.50, NASDAQ Composite +4.43 at an
all-time high settlement of 1939.82, and the Russell 2000 +.03 at
460.00.
Stock market breadth yesterday was bearish with declining
issues (1,675) leading advancing issues (1,226) by a slightly
better than 4 to 3 margin. Yesterday's volume was above-average at
656 million shares with declining volume accounting for 59% of the
total. The percentage of NYSE stocks above their 200-day averages
rose to a 1-1/2 month high of 52% where it was up from last
Monday's 3-1/2 year low of 42%. The number of shares posting new
52-week lows (218) exceeded the number posting new 52-week highs
(217).
The Dow was yesterday's biggest loser as it fell .93%. The
Russell 2000 was near unchanged while the S&P 500 fell .67% and the
NASDAQ rose .23%. For the year-to-date, the NASDAQ is in first
place with a 23.53% gain followed by the S&P 500 at +19.39% and the
Dow at +14.94%. The Russell 2000 continues to lag with a 5.26%
year-to-date gain.
Bearish factors for the stock market include (1) profit taking
with the S&P 500 up 8.58% in the last 3-weeks through Wednesday's
all-time high, (2) yesterday's profit warning from DuPont, (3)
persistent weakness in the oil shares, (4) valuation concerns with
the S&P 500 trading at a lofty 28 times 12-month trailing earnings
and 6.09 times its book value, (5) 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, and (6) 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.
Bullish factors yesterday included (1) a .87% advance in
General Electric, the largest US company by stock market
capitalization, (2) the rally in the NASDAQ to a new all-time high
as computer system and software stocks continued their advance, (3)
indications that mutual fund inflows for the year-to-date are
running about 20% ahead of last year's pace, and (4) 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.
Near the top of yesterday's most active list was Compaq
(+5.87%) and Dell (3.63%) at 33.01 and 23.53 million shares
respectively. Investors are betting that PC sales are picking up
after inventories swelled and prices tumbled in the first half of
1998. The third quarter has also been historically strong for PC
sales due to back-to-school purchases.
Yesterday's sell-off was broad-based as 72 of the S&P 500's 89
sub-groups fell while 17 rose. Market breadth was bearish as 366
of the S&P 500 stocks closed lower while 118 rose. The chemical
sub-index, due to DuPont (see below), was yesterday's biggest
contributor to the S&P 500's decline on a capitalization basis.
Of the 30 Dow stocks, 22 fell yesterday while 8 rose. DuPont
(-7 or -9.08%), the US's largest chemical company, was the Dow's
biggest loser after it warned that Q2 profits would fall 15% below
year-ago levels. Half of the shortfall, the company said, was due
to a decline in pesticides business while the other half was due
variously to declining oil prices, falling prices for textile
fibers and a drop-off in sales to Asia. The warning was of
particular concern to the market since the Q2 profit report will
likely break a 16-quarter string of record profits. The warning is
a microcosm of overall corporate profits which are slowing after
six years of above-average growth.
The cash S&P 500 posted an all-time high of 1166.89 on
Wednesday where it continued its break-out above the 3-month
sideways trading range that existed between 1133 and 1075. On
Wednesday's high, the index extended its 3-week upmove to a total
of 8.58%. On yesterday's all-time high of 570.69, 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
on Wednesday where it broke its 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 1947.41
yesterday where it was up 13.54% from the Jun 15th 4-month low of
1715.19.
Spike in call/put ratio suggests stock market is overbought --
The 10-day average of the call/put volume ratio on the OEX options
contract surged to an 8-month high of 1.8 (i.e., there were 1.8
calls traded for every one put) on Wednesday where it was up
sharply from its 6-1/2 month low of 1.37 posted just 3-weeks ago. On
yesterday's high, the ratio held just below its 8-3/4 year peak
of 1.95 (10/7/97). Major highs and lows in the call/put ratio have
corresponded fairly well to significant peaks and troughs in the
stockmarket. The theory behind this indicator is that excessive
enthusiasm in thestock market will be reflected in excessive call
trading. For example, the peak at 1.95 was posted the same day
that the S&P 100 posted its former all-time high of 473.18. The
market thereafter entered its October correction. The call/put
ratio can't be used by itself to identify market peaks but it is
certainly sending a warning sign at current levels.
Initial Q2 earnings are above expectations -- Of the 44
companies in the S&P 500 that have reported profits thus far, 57%
have reported earnings that have beaten expectations while 21% have
fallen short, leaving a net positive surprise balance of 36%. At
this point last quarter, there was a net positive surprise balance
of only 9%. There are still too few Q2 earnings reports, however,
to yet draw conclusions about the quarter.
The positive surprise balance seen so far is due to the
significant downgrade of Q2 earnings estimates. Earnings estimates
for the S&P 500 in the second quarter have dropped from 13%
(annualized) made at the end of 1997 to 3.6% several weeks ago to
their present estimate of just above zero growth. This downward
revision is probably excessive and leaves room for an advance in
stock prices if earnings can come in even slightly better. This is
what happened in Q1 when earnings expectations were cut to 0.5%
before the flood of releases. Earnings ended up growing 3.8% in
the first quarter. Still, the pace of earnings growth has been
declining since peaking in October 1995. Q1 1998's year-on-year
earnings growth was the lowest since Q1 1991.
Commodities -- CRB closes lower led by hogs and grains -- The
CRB index yesterday closed down -1.01 points at 212.38 as it
continued to consolidate 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 +.40%
on a month-on-month basis but down -9.20% on a year-on-year basis.
Closes: Energy: CLQ98 +.03 at 13.88; HUQ98 +.0036 at .4715;
HOQ98 +.0013 at .3795; NGQ98 -.017 at 2.349. Precious Metals:
GCQ98 -1.7 at 292.5; SIU98 -1.0 at 535.5; PLV98 +2.4 at 384.5.
Grains: S X98 -10-0 at 608-4; SMZ98 -3.30 at 160.90; BOZ98 -.17 at
26.47; C Z98 -4-6 at 249-2; W Z98 -3-0 at 295-2. Livestock: LCQ98
-.58 at 63.77; FCQ98 -.25 at 72.17; LHQ98 -1.53 at 53.22; PBQ98
-3.00 at 54.62. Softs: SBV98 +.05 at 8.39; KCU98 -1.65 at 110.90;
CCU98 -7. at 1597.; JOU98 +2.45 at 101.20. Industrials: CTZ98 -.23
at 76.60; HGU98 -.40 at 71.80; LBN98 +.80 at 278.20.
Aug lean hogs were the CRB's biggest loser yesterday as the
contract fell -1.53 to close at 53.22. On yesterday's 3-1/2 month
low at 52.95, the contract fell 8.35 cents (13.39%) from the Jun
17th 5-month high of 60.30. Consumer demand for pork as a
substitute for beef has been disappointing this summer while the
hog herd is the biggest since 1980. Meatpackers now have large
inventories and supermarkets are demanding price cuts.
Nov soybeans fell -10-0 cents to close at 608-4 and Dec corn
fell -4-6 cents to close at 249-2. Grain markets softened after
the National Weather Service 6-10 day forecast called for above-
average rains and temperatures. That altered the outlook on
current dry and hot conditions which would pose more risk to the
new crop if they continued. The USDA will report on supply and
demand estimates today.
Aug crude oil rose +3 cents yesterday to close at $13.88. 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
this week as Nigerian military leaders dissolved the government.
Nigeria supplies 3% of global production. 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 $292.5 as it
remained below the psychologically important $300 level. Gold has
recently tracked movements in the currency markets with a stronger
dollar pressuring prices. Asian gold demand is vulnerable to
further weakening in the Japanese yen with the metal already
expensive in local currency terms. 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 -- Canadian June housing starts fell by -4.6% (mo-mo)
and by -5.8% (yr-yr) to an annual rate of 132,700 units. That was
moderately stronger than expectations for a reading of 120,000
units. Housing starts have slowed following the burst of activity
seen in the wake of the ice storm in Quebec and the BOC's flurry of
rate increases.
The Canadian dollar yesterday closed .40 cents weaker at
C$1.4755/US$, as it fell to a new all-time low of C$1.4770. On
yesterday's low, the Canadian dollar took out the previous all-time
mark 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 -.15 points at 125.85
as it held below Wednesday's 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 +1.7 bp at 5.265% as it rebounded
above Wednesday's 3-month low of 5.228%. 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 -6 bp at 94.86, 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 -38.10 points at
7413.20, 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 sharply higher, lifted by continued
worries about Russia -- The dollar yesterday pushed higher through
most of the European and US sessions before tailing off a bit late
in the day to finally settle sharply stronger. Dollar closes (3PM
NY): cash dollar index +.64 at 102.46; dlr/yen +1.96 at 141.20;
dlr/mark +.0107 at 1.8285; dlr/Swiss +.0130 at 1.5408; stlg/dlr
-.0042 at 1.6320; USD/CAD +.0040 at 1.4755. Mark closes: mark/yen
+.62 at 77.21; stlg/DM +.0099 at 2.9849; mark/FRF -.0026 at 3.3496;
mark/lira +.89 at 985.60; mark/Swiss +.0022 at .8425. Futures
closes: DXU98 +.69 at 102.33; JYU98 -.0104 at .7146; DMU98 -.0033
at .5489; SFU98 -.0060 at .6528; BPU98 -.0028 at 1.6272; CDU98
-.0020 at .6784; ADU98 -.0047 at .6129.
The dlr/yen yesterday closed +1.96 yen, as it consolidated
upper third 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 +1.07 pfennigs
at 1.8285 DM, as it posted a new 3-month high of 1.8325 DM.
Bullish factors for the dollar included (1) some
disappointment that Japanese officials haven't come out more
forcefully in favor of a permanent tax cut, (2) the continued
market uncertainty in Russia which has pressured the mark, (3) a
bullish technical picture for the dollar/mark which broke out to a
new 3-month high yesterday, (4) the Bank of England's decision to
leave its monetary policy unchanged, and (5) talk that the ECB's
future repo rate will only be 3.50%, thereby pointing to only a
token tightening by the BBK, and (6) the underlying strength in US
domestic demand as seen in the stronger than expected barrage of
chain store sales reports. 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)
persistent worries about a sharp slowdown in US economic activity
in the second half of the year.
European Comment -- The European markets today will focus on
(1) today's release of the French June CPI report and April current
account report, (2) the European credit markets which closed
moderately stronger yesterday, and (3) the European stock markets
which closed mildly weaker yesterday.
Germany -- The BBK yesterday at its regular bi-weekly meeting
left its monetary policy unchanged as expected. The BBK announced
another 2 weeks of fixed rate 3.30% repos.
The BBK held its regular summer press conference after
yesterday's meeting. Bundesbank President Tietmeyer said that the
German economy improved during the first half of the year and that
he expects that improvement to continue through the end of 1998.
However, he said that the economy continues to be led by the export
sector, adding that he hopes for increased domestic demand and
domestic activity.
Concerning inflation, Mr. Tietmeyer said that the price
climate is "favorable at all levels." Therefore, he said that
there is no reason for a rate change at the current time. Still,
he warned that potential inflationary pressures in some EMU nations
will need to be monitored and that these pressures could trigger a
decision on rates.
Concerning short-term rate convergence, Mr. Tietmeyer did not
comment on any level for convergence or the timing of rate
convergence. However, he cautioned that Italian and Irish short-
term rates will need to move sharply lower and that such monetary
easing should be matched by fiscal tightening.
BBK member Meister yesterday said that 90% of the ECB's forex
reserves will be composed of dollars, with the remaining 10%
composed of yen. That was in line with expectations and dashed
some talk of a larger share of yen reserves as part of an effort to
bolster the flagging Japanese currency.
Lastly, current Berliner und Frankfurter Handel Bank chief
economist Hermann Remsperger was nominated as the new BBK chief
economist. He will replace Otmar Issing who left the BBK to join
the ECB. Perhaps tellingly, Mr. Remsperger (in his capacity at
BHF-Bank)just last week told Bridge News that he expects the ECB's
initial repo rate to be 3.5%, only 20 bp above the current BBK repo
rate.
The German credit market closed slightly higher yesterday
after the BBK left its monetary policy unchanged as expected. The
German credit market is focussed on Jun pan-German CPI, Jun
wholesale prices, and Jun M3 money supply.
The 10-year Bund yield yesterday closed -0.4 bp at 4.717%
after posting an all-time low yield of 4.691% on Tuesday. Liffe
Sep Bunds yesterday closed up +.13 at 108.90 after posting a
contract high of 109.06 on Tuesday. The Liffe Sep Euromark
yesterday closed up +.005 at 96.380 after posting a contract high
of 96.385 on Monday.
The Dax index yesterday closed down 16 points at 5997 (-.27%)
after posting a new all-time high of 6052. The Dax is up +41.11%
for the year to date in mark terms and +38.6% in US dollar terms.
Lufthansa (-3.83%) led the Dax came off of its highs after the European
Commission ruled that it and United Airlines had to give up 108 landing slots
in Frankfurt in order to gain approval for its alliance.
France -- The Bank of France yesterday drained 100 million francs from
the banking system, 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%.
French Q1 GDP was left unrevised at +0.6% (qtr-qtr). That was
down a bit from the +0.8% growth seen in Q4. INSEE last week said
that it expects 1998 GDP growth of +3.2%, thereby pointing to
slightly faster growth in the remainder of the year.
The French franc yesterday closed .26 centimes stronger at
3.3496 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 little changed yesterday. The
Bank of France did not alter interest rates after the Monetary
Policy Council meeting. Final Q1 GDP was unrevised at +0.6% q/q
after gaining +0.8% q/q in Q4. The French credit market is
focussed on today's Jun CPI (expected unch m/m, +1.0% y/y) and Apr
current account balance (expected FFR 17.5 bln surplus).
The 10-year Notional yield yesterday closed down -0.2 bp at
4.803% after posting an all-time low yield of 4.764% on Tuesday.
The Sep Notional bond yesterday closed unchanged at 104.90 after
posting a contract high of 105.13 on Tuesday. The Sep Pibor
yesterday closed unchanged at 96.375 after it also posted a
contract high at 96.385 on Tuesday.
The CAC40 stock index yesterday closed down 21 points at 4319
(-.48%) after posting a new all-time high of 4363. The CAC40 is up
44.03% for the year-to-date in franc terms and up 40.56% in US
dollar terms. A 1.91% drop in France Telecom, the CAC40's largest
company by market capitalization, accounted for about half of the
index's loss. A newspaper article said that there were competitors
other than France Telecom for a planned link-up with France's
electric utility Electricite de France.
UK -- The Bank of England's Monetary Policy Committee left its
monetary policy unchanged with the base rate at 7.50%. That was a
relief due to the possibility of another rate hike. Still,
yesterday's decision won't deflate such market talk. Instead,
speculation about another tightening will now shift to the Aug 5-6
meeting which may be crucial as it precedes the Aug 12th release of
the Bank of England's next Quarterly Inflation Report.
Sterling yesterday settled +.99 pfennigs at 2.9849 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 UK credit market closed higher yesterday. Bullish factors
included the decision by the BOE Monetary Policy Committee to leave
interest rates unchanged at meeting. The UK credit market is
focussed on Monday's Jun PPI (May +0.1% m/m, +0.9% y/y), Tuesday's
Jun RPI (May +0.6% m/m, +4.2% y/y) and RPIX (+0.6% m/m, +3.2% y/y),
and Wednesday's Jun unemployment report.
The 10-year gilt yield yesterday closed -9.5 bp at 5.773% and
held below its 1-1/2 month high yield of 5.931% that was posted on
Jun 19th. Sep gilts yesterday closed up +.60 points at 109.15
where they remained within the 2-week trading range. Sep short
sterling yesterday closed up +.140 at 92.220 where it rebounded
from the Jun 19th 5-1/2 year low of 92.020.
The FTSE stock index yesterday closed down 39.9 points at
5969.7 (-.66%) after posting a new 1-month high of 6043.8. The
index continues to trade near the top of its 3-month long trading
range between approximately 6065 and 5650. The FTSE is up 16.24%
for the year-to-date in sterling terms and up 15.2% in US dollar
terms. The FTSE was pressured by DuPont's Q2 profit warning and
weakness on Wall Street. Asian Comment -- Japan -- Chief Cabinet
Secretary Muraoka yesterday said that the Tax Commission will start
discussions on a permanent tax cut on July 16. He said that
government advisory panel will decide on how to finance the
permanent tax cuts, including the possibility of more deficit-
covering bonds. That will probably require another liberalization
of the Fiscal Structural Reform Law which provides limits for the
government's budget deficit.
The Nikkei index yesterday closed down 84 points at 16,447
(-.51%) as it continued to consolidate in a narrow range 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 plans on a permanent tax cut. The Osaka Stock
Exchange reported yesterday that foreigners were net buyers of
Japanese stocks in the first week in July for the first time in
four months. 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 7.79% for the year-to-date in yen
terms and is down -.33% in US dollar terms.
Tokyo Sep JGBs yesterday closed unch at 132.36, trading just
mildly above last Wednesday's 1-1/2 month low of 131.96. JGBs are
under pressure from the expected FY-99 permanent tax cut and the
likelihood that the government will finance that tax cut with
additional deficit-covering bonds. In London, June JGBs settled at
132.33, little changed from the London close. The benchmark No.
182 10-year JGB closed unch at 1.360%, well above the recent all-
time record low closing yield of 1.130% (6/2/98). The Dec Euroyen
yesterday settled -1.5 bp at 99.240, still retaining most of last
week's recovery rally.
Asian Stock Market Closes: Hong Kong Hang Seng -2.07%,
Australia All-Ordinaries +.58%, Singapore Straights Times
Industrials -.37%, South Korea Composite Index +.07%, Thailand
Stock Exch +.42% (7/8/98), Taiwan weighted index +.13%, Philippines
composite index -1.57%, Malaysia composite index -1.62%, China SE
Shanghai A +.35%, Indonesia Jakarta composite index -.56%.
OPTIMA FINANCIAL NEWS SCHEDULE^ Friday 7/10/98
A. Today's News (local & GMT release times shown)
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 surplus expected FFR
17.5 bln, March FFR 13.3 bln.
0850 CET 0650 Prelim. 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.
B. Future News
Tentative:
GER N/A June pan-German CPI, May +0.3% m/m &
+1/3% 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, last -1 to 22.
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, last -1,000 to 392,000.
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 Tax Commission expected to begin
discussions 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.
UK N/A 2-day BOE MPC meeting 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.
UK N/A 2-day BOE MPC meeting concludes,
announcement expected at noon UK.
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:
Aug 12: BOE releases its Quarterly Inflation Report.
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-4; British Time UK=GMT; Continental
European Time CET=GMT+2; Japan Time JT=GMT+9.
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